PANAMSAT CAPITAL CORP, 10-K, 1997-03-31

PANAMSAT CAPITAL CORP
10-K, 1997-03-31
COMMUNICATIONS SERVICES, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K

[X] ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended December 31, 1996

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

Commission File No. 0-26712
PANAMSAT CORPORATION
PANAMSAT CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 06-1407851
DELAWARE 06-1371155
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

ONE PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

(203) 622-6664

(Registrant's telephone number, including area code)

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

COMMON STOCK, PAR VALUE $.01 PER SHARE

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 for 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 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.

As of March 24, 1997, the registrant had outstanding 19,092,757 shares of
Common Stock, 40,459,432 shares of Class A Common Stock and 40,459,431 shares of
Class B Common Stock. As of such date, the aggregate market value of voting
stock held by non-affiliates of the registrant was $539,370,385.
<PAGE>

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report on Form 10-K contains certain forward-looking
information provided in "Business" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations." The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-
looking statements to encourage companies to provide prospective information
about their companies without fear of litigation so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. When used in this
Annual Report on Form 10-K, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe," and similar expressions are intended to identify
forward-looking statements and information. PanAmSat identifies the following
important factors which could cause PanAmSat's actual results to differ
materially from any results which might be projected, forecast, estimated or
budgeted by PanAmSat in forward-looking information. All of such factors are
difficult to predict and many are beyond the control of PanAmSat. Accordingly,
while PanAmSat believes that the assumptions underlying the forward-looking
information are reasonable for purposes of the development of estimates of cost
savings and revenue enhancements, there can be no assurance that such
assumptions will approximate actual experience, and in such event, actual
results could differ materially from the predictions contained herein. These
important factors include: (i) successful launch of the satellites on their
anticipated schedules, (ii) continued functionality of the existing in-orbit
satellites, (iii) future economic and competitive conditions in the regional,
national and global markets in which PanAmSat competes, (iv) success in
obtaining necessary regulatory approvals and licenses, (v) continued ability to
fund capital programs and meet debt obligations, (vi) successful resolution of
material pending litigation matters, and (vii) continued employment of Frederick
A. Landman, PanAmSat's President and Chief Executive Officer or Lourdes
Saralegui, PanAmSat's Executive Vice President.

PART I

ITEM 1. BUSINESS

OVERVIEW

PanAmSat Corporation ("PanAmSat" or the "Company") operates the world's
first privately owned global (excluding domestic U.S.) satellite communications
system. PanAmSat currently provides satellite services primarily to the
broadcasting and business communications markets and also provides services to
the long-distance telephony market. In connection with its current services,
PanAmSat is pursuing international opportunities in the satellite direct-to-home
("DTH") television market. See "DTH Strategy."

PanAmSat's first satellite, PAS-1, was launched in June 1988 for service
over the Atlantic Ocean Region and is a leading satellite for television and
cable programming distribution in Latin America. PanAmSat's second satellite,
PAS-2, was launched in July 1994 for service over the Pacific Ocean Region and
is a leading satellite for programming distribution in the Asia-Pacific Region.
PanAmSat's PAS-4 satellite was launched in August 1995 for service over the
Indian Ocean Region and is a leading satellite for programming distribution in
south Asia and Africa. PanAmSat's PAS-3 satellite was launched in January 1996
for service over the Atlantic Ocean Region. PAS-3 and PAS-1 are the leading
satellites for television and cable programming distribution in Latin America.
PanAmSat expects to launch two additional satellites to serve the Atlantic Ocean
Region: PAS-6 in May 1997; and PAS-5 in July 1997. PanAmSat intends to launch
PAS-7 and PAS-8 in early 1998. PAS-7 and PAS-8 are expected to serve the Indian
Ocean Region and the Pacific Ocean Region, respectively. PanAmSat expects that
in the future it will launch additional satellites to meet then-anticipated
customer demand. There can be no assurance, however, that the schedule for
PanAmSat's future satellite launches will be met.

PROPOSED MERGER WITH HUGHES-GALAXY SATELLITE BUSINESS ("GALAXY BUSINESS")

On September 20, 1996, the Company, Hughes Communications, Inc. ("HCI"),
Hughes Communications Galaxy, Inc., Hughes Communications Satellite Services,
Inc. ("HCSS"), Hughes Communications Services, Inc.,

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Hughes Communications Carrier Services, Inc., Hughes Communications Japan, Inc.,
Magellan International, Inc. ("New PanAmSat") and PAS Merger Corp., a newly
formed subsidiary of New PanAmSat, entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement"). The Reorganization Agreement
contemplates, among other things, that PAS Merger Corp. will be merged with and
into PanAmSat (the "Merger") and the existing commercial satellite business of
HCI and certain of its subsidiaries ("Galaxy" or the "Galaxy Business") will
be contributed to New PanAmSat, with the result that: (a) PanAmSat will become a
wholly owned subsidiary of New PanAmSat, (b) each issued and outstanding share
of the Company's Class A Common Stock and the Company's Common Stock will be
converted, at the election of each holder, into either (i) the right to receive
an amount in cash equal to $15, plus one half (1/2) share of Common Stock, par
value $.01 per share, of New PanAmSat (the "New PAS Common Stock"), (ii) the
right to receive (subject to proration, as applicable) one share of New PAS
Common Stock, or (iii) the right to receive (subject to proration, as
applicable) an amount in cash equal to $30 (collectively, the "Merger
Consideration"), (c) New PanAmSat will own and operate the Galaxy Business, and
(d) HCI and certain of its subsidiaries will receive an aggregate of 106,622,807
shares of New PAS Common Stock.

Immediately prior to the Merger, in a separate but related transaction (the
"Univisa Contribution"), it is contemplated that pursuant to the Stock
Contribution and Exchange Agreement dated as of September 20, 1996 among Grupo
Televisa, S.A., a Mexican corporation ("Televisa"), Satellite Company, L.L.C.
("S Company"), New PanAmSat and HCI, New PanAmSat will acquire from S Company
all of the capital stock of Univisa, Inc. ("Univisa"), which is the indirect
holder of all of the outstanding shares of the Company's Class B Common Stock.
In connection with the Univisa Contribution, S Company will receive, for each
share of the Company's Class B Common Stock indirectly owned by Univisa, at S
Company's election, consideration that is equal in amount and form (subject to
proration, as applicable) to the consideration payable on account of each share
of the Company's Class A Common Stock and the Company's Common Stock in the
Merger.

Assuming that New PanAmSat pays half stock and half cash as consideration
in the Merger and the Univisa Contribution, the shares of New PAS Common Stock
received by HCI and certain of its subsidiaries will represent approximately
71.5% of the outstanding shares of New PAS Common Stock after the Merger. The
Reorganization Agreement provides that the maximum aggregate cash consideration
to be paid in connection with the Merger and the Univisa Contribution will be
equal to $15 multiplied by the number of shares of PanAmSat Common Stock
outstanding at the time of the Merger. New PanAmSat may limit the aggregate
number of shares of New PAS Common Stock that may be issued in the Merger and
the Univisa Contribution to as few as one half (1/2) of the number of shares of
PanAmSat Common Stock outstanding at the time of the Merger.

It is also anticipated that in connection with the Merger, immediately
following the Univisa Contribution, 7.5 million shares of New PAS Common Stock
received by S Company in connection with the Univisa Contribution will be
repurchased by New PanAmSat for $225 million (the "Share Repurchase").
Following the Share Repurchase, either Televisa, S Company and/or their
designees will purchase for $225 million all of PanAmSat's rights to purchase
equity interests in certain joint ventures to be formed to offer DTH services in
Latin America and the Iberian Peninsula pursuant to the DTH Option Purchase
Agreement dated September 20, 1996 (the "DTH Option Purchase Agreement") between
PanAmSat, Televisa and S Company (the "DTH Sale").

It is anticipated that the Merger will be accounted for under the purchase
method of accounting in accordance with generally accepted accounting
principles, with Galaxy as the acquirer of PanAmSat.

The Merger will create a leading supplier of global satellite
communications services. The business of the combined businesses will consist
of both international and domestic satellite communications services.

The Merger is subject to approval from the Company's stockholders and the
Federal Communications Commission (the "FCC"). The regulatory approval process
is expected to be completed in the Spring of 1996. The Reorganization Agreement
includes termination provisions which require that, in the event that the
Reorganization Agreement is terminated by PanAmSat and the Company consummates
or agrees to consummate certain business combination transactions, PanAmSat will
pay to HCI $80 million.

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CUSTOMERS AND MARKETS

PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. PanAmSat has several hundred customers and, at
December 31, 1996, had signed long-term contracts to provide satellite capacity
on PAS-1, PAS-2, PAS-3, PAS-4, PAS-5 and PAS-6 aggregating approximately $3.7
billion. PanAmSat's customers for television programming distribution and other
broadcasting services include ABS-CBN Broadcasting Co., Arab Radio and
Television, the BBC, Bloomberg Information Television, CBS, China Central
Television, Chinese Television Network, Country Music Television, Discovery,
Disney, ESPN, 20th Century Fox, Fuji TV, HBO, Fox Sports International, Liberty
Sports, M-Net/MultiChoice, NBC, NHK, SABC/Sentech, Sony, Taiwan Asia Space
Cable, Tele-Communications, Inc., Televisa, Television Broadcasts International,
Television Corporation of Singapore, Turner Broadcasting Systems (CNN, Cartoon
Network, TNT) and Viacom (MTV, Nickelodeon), and for business communications
services include the Associated Press, Citicorp, Credit Suisse, Dow
Jones/Telerate, El Tiempo, Ji Tong, Impsat, MCI, Procedatos, PT. Primacom,
Reuters, Sara Lee, Sprint, Transtel and the U.S. government. PanAmSat's
customers for DTH Services include Sky Entertainment Services, one of the Latin
America JVs (as defined below), Showtime (also known as Gulf DTH) and Firstnet,
which operate in the Middle East; and M-Net/MultiChoice and SABC/Sentech, which
operate in South Africa.

PanAmSat's video distribution services, which generated approximately 83%
of PanAmSat's total revenues for the year ended December 31, 1996, include the
provision of satellite capacity and services for (i) television programming
distribution, (ii) "backhaul" operations (i.e., the transmission of video
feeds from one location to another) and (iii) ad hoc services, such as the
transmission of special events and live news reports. PanAmSat's business
communications services, which generated approximately 16% of PanAmSat's total
revenues for the year ended December 31, 1996, include (a) the provision of
satellite capacity to communications carriers that provide private business
networks for data, voice, corporate video and Internet communications and (b)
the provision of such networks and related services by PanAmSat directly to end-
users. PanAmSat's telephony services provide satellite capacity for use in
domestic (non-U.S.) and international public telephone networks.

PanAmSat plans to provide DTH satellite services to specific television
markets around the world. In November 1995, PanAmSat announced that it would
serve as a satellite service provider for the Latin America DTH service to be
offered by Globo Participacoes, Ltd. ("Globo"), Televisa, News Corporation
Limited ("News Corp.") and Tele-Communications International, Inc. ("TCI"). On
February 29, 1996, PanAmSat entered into a letter agreement (as subsequently
amended, the "1996 Letter Agreement") with Globo, Televisa and News Corp. to
provide service to various joint ventures (the "Latin America JVs") to be formed
by Globo, Televisa, News Corp. and TCI. The purpose of the Latin American JVs is
to provide DTH services in Latin America on 48 transponders ultimately on PAS-5
and PAS-6, with temporary service on PAS-3 pending the commencement of service
on PAS-6. This capacity would enable the Latin America JVs to broadcast to Latin
America, the Caribbean and certain areas of the southern United States
approximately 500 digital channels to subscribers using small 24-36 inch (60-90
cm) antennas and to permit distribution of program packages of approximately 120
digital channels to specific market areas. The 1996 Letter Agreement
contemplates that three separate full-scale transponder agreements will be
entered into for the regions of (i) Brazil, (ii) Mexico, including other
Spanish-and Portuguese-speaking parts of North America and (iii) Latin America
(except Brazil and Mexico). A full-scale transponder agreement has been entered
into (and subsequently amended) with respect to 12 transponders for Brazil (the
"Brazil Transponder Agreement") and the 1996 Letter Agreement remains in force
as to the remaining 36 transponders for the other regions. Execution of full-
scale transponder agreements for the other two regions is subject to negotiation
and no assurance can be given that such full-scale agreements will be
consummated. See "DTH Strategy."

The 1996 Letter Agreement and the Brazil Transponder Agreement provide for
minimum payments over their respective terms of approximately $1.3 billion,
depending upon the actual useful life of the satellites in question, their
predicted performance and their in-service dates. For most of the transponders,
the amounts to be paid reflect service fees that are equal to PanAmSat's best
estimate of the cost to design, construct, launch, insure and operate the
satellites and for the balance of the transponders, the amounts to be paid
reflect service fees that are based on a fixed price. On the cost-based
transponders, PanAmSat also could receive revenue sharing from the Latin America
JVs. The Brazil Transponder Agreement was entered into on the same economic
terms as to the applicable 12 transponders as were set forth in the 1996 Letter
Agreement. Subsequent amendments to the Brazil Transponder Agreement and the
1996 Letter Agreement address the possibility of a longer than originally
anticipated life of PAS-6 (under which the agreements may be, but are not
required to be, extended beyond the

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originally anticipated useful life of PAS-6) but do not alter the minimum values
anticipated under the 1996 Letter Agreement, as originally entered into.

Under an agreement dated as of September 20, 1996 (the "Spain Transponder
Agreement"), PanAmSat will provide to Televisa, S.A. de C.V., a wholly owned
subsidiary of Televisa ("Televisa Spain") transponder service from five PAS-3
Ku-band transponders, at least three of which will be for the delivery of
television services to Spain, that may include DTH services. The transponder
service fees reflect market rates. This agreement is unaffected by the DTH Sale.

PanAmSat has also designed PAS-2, PAS-4 and PAS-7 and is designing PAS-8
with the capability of providing high-powered digital DTH service in their
respective coverage areas. PanAmSat's satellites are platforms for operational
DTH services in Brazil, the Middle East and South Africa, and for planned DTH
services for India and Spanish-speaking Latin America. Digital DTH channels on
PanAmSat's satellites are capable of providing image and sound quality superior
to current cable, MMDS or broadcast television services.

PanAmSat believes that the demand for international satellite services in
the broadcasting and business communications markets will grow substantially in
the foreseeable future. This growth is expected to result from (i) increased
distribution of television programming to national, regional and international
audiences, (ii) continuing worldwide deregulation of telecommunications markets,
(iii) continuing technological advancements and (iv) economic development
worldwide and the increasing globalization of business.

CONVERSION AND INITIAL PUBLIC OFFERING

Between 1992 and March 2, 1995, PanAmSat operated as a Delaware partnership
(the "Partnership") and prior to 1992, as a sole proprietorship and through
other forms of organization. On March 2, 1995, pursuant to an amended Exchange
and Subscription Agreement and Plan of Reorganization, PanAmSat, the Partnership
(PanAmSat's predecessor) and its partners consummated the conversion of the
Partnership to a corporation (the "Conversion"). In connection therewith, (i)
Rene Anselmo, PanAmSat's late Chairman of the Board and Chief Executive Officer,
members of the family of the late Mr. Anselmo, trusts for the benefit of certain
Anselmo family members, Frederick A. Landman, PanAmSat's current President and
Chief Executive Officer, and Lourdes Saralegui, Executive Vice President of
PanAmSat (collectively, the "Anselmo Group") exchanged their interests in the
Partnership for shares of PAS Class A Common Stock, representing approximately
49.66% of the outstanding common stock of PanAmSat, (ii) Univisa Satellite
Holdings, Inc. ("USHI") exchanged its interest in the Partnership for shares of
PAS Class B Common Stock, representing approximately 50.15% of the outstanding
common stock of PanAmSat and (iii) a partner of the Partnership exchanged his
interest in the Partnership for shares of PanAmSat Common Stock, representing
approximately .19% of the outstanding capital stock of PanAmSat. On September
27, 1995, PanAmSat completed its initial public offering (the "IPO") of
18,920,000 shares of PanAmSat Common Stock, including 4,595,676 shares held by
members of the Anselmo Group and Televisa, and PanAmSat received net proceeds of
approximately $229 million. In addition, PanAmSat has issued 9-3/4% Senior
Secured Notes due 2000 (the "Senior Secured Notes"), 11-3/8% Senior
Subordinated Discount Notes due 2003 (the "Discount Notes," and together with
the Senior Secured Notes, the "1993 Notes") and the 12 3/4% Mandatorily
Exchangeable Senior Redeemable Preferred Stock of PanAmSat (the "Preferred
Stock"). Copies of the indentures and certificate of designation relating
thereto have been filed or incorporated by reference as exhibits hereto.
Summaries of the Senior Secured Notes, Discount Notes and Preferred Stock are
also available in PanAmSat's registration statement on Form S-1, filed on April
2, 1996 under file number 333-3114.

BUSINESS STRATEGY

PanAmSat's strategy has evolved from its experience with the development
and marketing of PAS-1, PAS-2, PAS-3 and PAS-4 and its analysis of the current
and anticipated worldwide market for satellite communications services. PanAmSat
believes that implementation of its strategy has established PanAmSat as an
international leader for broadcasting and business communication services.
PanAmSat's strategy is to continue to focus on six key elements:

. Customer-driven service offerings;

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. Superior satellite system technical characteristics;

. Emphasis on broadcasting services;

. Concentration on other high-growth communications services;

. Early market entry; and

. Global coverage.

Customer-Driven Service Offerings

PanAmSat believes that the most important aspect of its business strategy
is that PanAmSat is market driven and responsive to its customers' needs.
PanAmSat offers customers ease-of-access and operation with respect to the use
of satellite capacity. PanAmSat also offers customers a complete end-to-end
package of satellite communications services on a one-stop shopping basis. The
end-to-end services provided by PanAmSat include satellite capacity, teleport
services and network services, including the design, integration, management and
maintenance of networks and the procurement of ground equipment. PanAmSat
furnishes substantially all of its terrestrial services outside of the United
States through independent contractors.

PanAmSat developed its service strategy when it first commenced operations,
at which time Intelsat was PanAmSat's only significant competitor. Intelsat
generally provides services only through its signatories and not directly to
end-users. Intelsat's rates are often inflexible, fixed by tariff and
customarily include a markup by each signatory. In addition, Intelsat and its
signatories have historically focused on international telephony services,
rather than the requirements of other users, such as television broadcasters and
business communications network users. Intelsat also typically has launched
satellites with generic beam designs that have generally been suitable primarily
for transmission to the large, expensive "gateway" earth stations of national
telephone companies. See "Competition."

Superior Satellite System Technical Characteristics

The satellites in PanAmSat's global (excluding domestic U.S.) satellite
system (the "PAS Global System") are designed to provide high-transmission
power, a key technical characteristic sought by broadcasting and business
communications customers. The satellites' high power and other technical
characteristics permit high-quality transmissions for the distribution of
television programming and enable broadcasting and business communications
customers to utilize cost-effective networks using small, low-cost antennas on
the ground.

The orbital slots for PanAmSat's satellites were selected to optimize the
satellites' coverage and the global connectivity of the PAS Global System. Since
orbital slots are limited in number and each slot provides a different range of
coverage areas, PanAmSat believes that its early selection of orbital slots
enhanced its technological capabilities and scope of coverage. The geographic
coverage patterns of the satellites in the PAS Global System are custom-designed
to focus signal power over centers of population and economic activity.

Emphasis on Broadcasting Services

PanAmSat expects the international broadcasting market to experience
significant growth as broadcasters and cable television programmers seek to
expand the distribution of their programming to national, regional and
international audiences worldwide. Future demand is expected to include
international television programming distribution, backhaul operations and ad
hoc services. PanAmSat has designed its satellite services to meet the program
distribution requirements of broadcasters and programmers. The technical
characteristics and coverage areas of each of PAS-2, PAS-3, PAS-4, PAS-5, PAS-6
and PAS-7 were specified after extensive discussions with PanAmSat's major
customers and potential customers regarding their service needs. The technical
specifications of PAS-8 are in the design stages and subject to change. PanAmSat
facilitates television programming distribution by offering satellite capacity,
teleport services and technical services.

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In addition, PanAmSat provides satellite capacity on PAS-3, and plans to
provide satellite capacity on PAS-5 and PAS-6, for digital DTH services in
response to the desire of broadcasters and programmers to increase their viewing
audiences in Latin America. PanAmSat expects there to be significant demand for
digital DTH services in Latin America because of the large number of television
households without cable services or access to extensive programming in the
region. See "DTH Strategy."

Concentration on Other High-Growth Communications Services

PanAmSat targets other high-growth markets where its satellites provide
advantages to users of private business networks and long-distance telephony
services in rural and underdeveloped areas. Business and other organizations,
particularly those with sites in remote locations or inadequate terrestrial-
based services available to them, have become increasingly dependent upon
satellites to serve their communications requirements. These communications
requirements are based on the need to collect, process, respond to and
disseminate information, such as ATM and credit card verification and inventory
control. Organizations such as banks and retail chains are, in increasing
numbers, installing very small on-site antennas to set up satellite-based
communications networks instead of using higher cost and/or unreliable
terrestrial telephone lines. In addition, a growing number of domestic and
regional telephone companies, especially in developing countries, are using the
satellite capacity of PanAmSat and others to offer long-distance telephony
services in rural areas. Internet service providers in several countries in
Latin America and Asia also use satellites for international access to the
Internet.

Early Market Entry

PanAmSat's strategy is to launch high-powered satellites early in their
respective markets that are capable of delivering broadcast and business
communications services via signals that may be received by users of small
antennas. Partly as a result of its early market entry, PanAmSat believes it has
established PAS-1, PAS-2, PAS-3 and PAS-4 as leading satellites for television
programming distribution in their respective coverage areas and as important
satellites for private business networks.

Global Coverage

PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Accordingly, customers are able to contract solely
with PanAmSat for all of their global satellite communications requirements.
Previously, users of satellites who wanted to communicate or transmit over broad
areas were required to enter into contracts with a number of different Intelsat
signatories and/or regional and domestic operators that often provided
overlapping coverage or had substantial gaps in their coverage. Customers with
global communications requirements include video programmers, broadcasters, news
and sports organizations and operators of public and/or private communications
networks.

PanAmSat believes that its orbital slots provide a competitive advantage
for PanAmSat's global satellite services due to the limited number of available
slots that provide commercially desirable transoceanic coverage. Applications
for orbital slots for C-band and Ku-band geostationary satellites have been
filed by the U.S. government with the International Telecommunications Union
("ITU") on behalf of PanAmSat at 45(degrees) W.L. (Atlantic Ocean Region), 43
(degrees) W.L. (Atlantic Ocean Region), 68.5(degrees) E.L. (Indian Ocean
Region), 72(degrees) E.L. (Indian Ocean Region), 191(degrees) W.L. (Pacific
Ocean Region) and 194(degrees) W.L. (Pacific Ocean Region). PanAmSat has
requested registration of a second satellite at 43(degrees) W.L. (Atlantic Ocean
Region) and a satellite at 58 degrees W.L. (Atlantic Ocean Region). See
"Government Regulation--International Telecommunications Union Coordination." In
addition, PanAmSat has applied for U.S. government authorization to use 79
degrees W.L. (PanAmSat has informally asked that the FCC associate this
application with the 81(degrees) W.L. orbital location) and 93(degrees) W.L. for
C-band and Ku-band geostationary satellites. If these two applications are
granted, the FCC would have to assign different orbital locations because it
since has assigned the 79(degrees) and 93(degrees) W.L. locations to other
applicants. PanAmSat also has applied for nine orbital slots for Ka-band
geostationary satellites, one of which the FCC tentatively has assigned to it
subject to final action on its applications for those orbital locations.
Pursuant to an agreement among all the Ka-band applicants that is subject to FCC
approval, PanAmSat expects to be assigned a second Ka-band orbital location. The
U.S. government has filed with the ITU for these additional slots, substantially
all of which are sought by other U.S. applicants as well. See "Government
Regulation--U.S. Regulation."

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SERVICES

In the year ended December 31, 1996, PanAmSat's revenues were derived from
the following markets:

<TABLE>
<CAPTION>
SERVICES 1996 REVENUES
- -------- -------------
<S> <C>
Video Distribution..................... 86%
Business Communications................ 13
Telephony.............................. 1
---
Total................................ 100%
===
</TABLE>

Video Distribution

Local, domestic and international broadcasters use satellite capacity and
services for (i) television programming distribution, (ii) "backhaul"
operations (i.e., the transmission of video feeds from one location to another)
and (iii) ad hoc services such as the transmission of special events and live
news reports from the scene of the event. Currently, the largest market for
broadcasting services is the full-time leasing of satellite capacity by
programmers for distributing programming to television stations, local cable
operators, master antenna systems and, on a limited basis, directly to homes.

Television Programming Distribution

PanAmSat's program distribution strategy is to establish each of its
satellites as a leading satellite for the distribution of television programming
to cable and other redistribution systems in its service region and to position
the PAS Global System as a single source for the global (excluding domestic
U.S.) distribution of television programming.

In January 1989, CNN became the first international programmer to use PAS-1
to distribute television programming in Latin America. Over the next twenty-four
months, PanAmSat entered into agreements with other full-time programmers, such
as ESPN, HBO, Televisa and TNT. Local cable television operators and over-the-
air broadcasters installed antennas to receive programming from this core group
of international programmers, thus creating an infrastructure in Latin America
to receive PAS-1 signals. As a result of the installed base of antennas pointed
at PAS-1, programmers desiring regional distribution sought to use PAS-1 to
reach that audience and compete effectively with the major full-time video
programmers in Latin America. Upon the commencement of PAS-3 services on
February 19, 1996, PanAmSat started migrating some broadcast customers from PAS-
1 to PAS-3, under a plan to provide additional PAS-1 capacity for business
communications services. PAS-1 and PAS-3 are now the leading satellites for
television and cable programming distribution in Latin America. As of December
1996, PAS-1 and PAS-3 cumulatively distributed more than 60 television and cable
programming channels to Latin America.

For domestic Latin America broadcasters, PanAmSat offers the ability to
create national networks where, due to local geography and high costs, none was
possible before. For example, Telefe, the leading television network in
Argentina, was created when a group of independent local Argentine television
stations began using PAS-1 in December 1990 for national programming
distribution. Domestic broadcasters in Peru and Chile also used PAS-1 to create
national networks.

PanAmSat offers broadcasters direct access to PanAmSat satellites from
their own facilities. This direct access leads to both economic and operational
efficiencies for the broadcasters. PanAmSat satellites also offer a number of
other advantages for domestic broadcasters. Domestic broadcasters may, for
example, purchase certain segments of an international programmer's feed (e.g.,
a sports event from ESPN or a news show from CNN) for broadcast as part of their
own programming, without incurring the cost of adding a separate earth station
to receive the international programmer's segments. In addition, domestic
broadcasters can sell their programming (e.g., a local sports event) regionally
or internationally because PanAmSat satellites allow them to use the same
transmission antenna to relay their programming internationally as well as
domestically.

8
<PAGE>

Local cable and television station operators also benefit from the use of
PanAmSat satellites for television programming distribution. For example, in
Latin America, such operators need only two small earth stations pointed at each
of PAS-1 and PAS-3 to receive dozens of channels from both domestic and regional
broadcasters.

In the Pacific Ocean Region, PanAmSat's strategy has been to establish PAS-
2 as the leading satellite for the trans-Pacific distribution of television and
cable programming. As of December 1996, PAS-2 provided pan-Asian C-band coverage
and access to the western United States for more than 20 broadcast customers,
including ABS-CBN (Philippines), Asia Business News, the BBC, Bloomberg
Information Television, China Central Television, Chinese Television Network
(Hong Kong), Discovery, Disney, ESPN and Liberty Sports, NBC, NHK (Japan),
Television Broadcasts International (Hong Kong) and Television Corporation of
Singapore.

In the Indian Ocean Region, PanAmSat's strategy has been to establish PAS-4
as the leading satellite for the distribution of television and cable
programming throughout southern Asia, including the Indian Subcontinent and the
Middle East. Broadcast customers for PAS-4 C-band services throughout southern
Asia include Asia Business News, the BBC, China Central Television, Discovery,
Disney, Doordarshan (India), ESPN, HBO, Jain TV, Sony and Turner Broadcasting
Systems. In addition, PAS-4 is designed to provide C-band program distribution
services throughout Africa and northern Asia.

For the global distribution of television programming, customers that have
agreements with PanAmSat for service over several satellites include the BBC,
China Central Television, ESPN, Doordarshan (India), Liberty Sports, NHK, Turner
International and Viacom International.

Compressed Digital Video

At December 31, 1992, PanAmSat had sold out its capacity on PAS-1 for full-
time television programming distribution to Latin America. Since February 1993,
PanAmSat has used compressed digital video ("CDV") technology to expand its
satellite channel capacity and offer digital television channels to its
broadcast customers at a lower cost than comparable analog capacity. As part of
its marketing strategy, PanAmSat designates certain capacity on each satellite
for digital channels which have generated, and the company expects will continue
to generate, substantially more revenue per transponder as a result of video
compression even though each customer's cost per channel distributed by
satellite is reduced. PanAmSat also believes that CDV technology provides
television viewers with higher quality channels, movie programming options, new
data and other service applications. PanAmSat is using a range of leading CDV
suppliers for broadcast services on PAS-2, PAS-3 and PAS-4 from various teleport
facilities throughout the world. In April 1996, PanAmSat announced that it would
provide global CDV services using equipment by Scientific-Atlanta that meets the
MPEG-2/DVB international digital transmission standards.

Backhaul Operations

Broadcasters use satellite capacity for "backhaul" operations, such as
transporting programming from a broadcaster's foreign news bureau to its
broadcast center for simultaneous or later transmission. PanAmSat's services in
this area are focused on the transportation of program material and syndicated
programming for broadcasters on a scheduled basis. Program distributors utilize
24-hour full-time channels or scheduled part-time video services on PanAmSat
satellites to transport programming between locations. NHK, a leading Japanese
broadcaster, for example, utilizes full-time transponders on PAS-1, PAS-2 and
PAS-4 for the transportation of programming and news.

Special Events and Live News Coverage

Broadcasters use PanAmSat to transmit coverage of live scheduled special
events to programmers on a short-term ad hoc basis. For instance, PanAmSat
transmitted approximately 10,000 hours of television coverage of the 1996 Summer
Olympics over the PAS Global System. PanAmSat also provides broadcast services
to relay live news coverage, short duration video feeds and syndicated
programming for broadcasters on a scheduled or ad hoc basis. For instance,
PanAmSat broadcasted more than 150 hours of international news coverage of the
1996 U.S. Presidential election for U.S., European and Asian broadcasters.

9
<PAGE>

Radio

Radio broadcasters use satellites for program distribution, coverage of
news and sporting events and other broadcast and backhaul applications.
Customers for radio services on PAS-1 include BBC World Service, Radio France
International, Caribbean News Agency and Radio Netherlands.

DTH Distribution

High powered DTH satellites are designed to enable broadcasters and
programmers to reach the maximum number of television viewers possible.
Programming distributed over a DTH satellite is accessed by households and also
by local cable systems that redistribute that programming through ground-based
cable to households. In addition, the total television audience can be increased
significantly because the satellite's high transmission power enables households
equipped with 24-36 inch (60-90 cm) satellite dishes and related equipment to
receive the programming directly from the satellite.

PanAmSat's strategy includes launching and operating satellites capable of
providing DTH services. Each of PAS-2 through PAS-8 has or will have the
capability to provide high-powered DTH service in its respective coverage area.
For instance, M-Net/MultiChoice and SABC/Sentech commenced transmissions in
September 1995 of a multichannel DTH service throughout South Africa using
transponders on PAS-4. PanAmSat's satellites are also platforms for operational
DTH services in Brazil and the Middle East and planned DTH services in India,
and Spanish-speaking Latin America. See "DTH Strategy."

Other Services

PanAmSat offers a number of additional services to broadcasters. These
include teleport services such as complete network support and signal turnaround
(e.g., retransmission of a signal from a U.S. domestic satellite through
PanAmSat's teleports to PAS-1 for distribution to Latin America and to PAS-2 for
distribution to Asia). For instance, PanAmSat provides transmission uplink
services from its teleport in Homestead, Florida, for the Latin America JVs.
PanAmSat also provides third-party services and equipment such as trucks
equipped for live news reports and sporting events and domestic satellite
capacity, if required. In addition, PanAmSat offers one-stop service management
such as coordination and traffic management for international live news
reporting.

Business Communications

PanAmSat's business communications services include (i) the provision of
satellite capacity to communications carriers that provide private business
networks for data, voice, corporate video and Internet communications and (ii)
the provision of such networks and related services by PanAmSat directly to end-
users. Network users utilize satellites rather than ground-based transmission
media because satellite systems provide customers:

. cost savings for large, geographically dispersed networks;

. independence from telephone companies;

. predictability of costs over a long period;

. flexibility in changing and adding remote locations to a network;

. integrated network management and control of all remote locations; and

. increased network availability and lower transmission error rates.

Many businesses and organizations currently use satellite communications
networks for certain of their communications needs. For example, retail chains
use satellite business communications networks for rapid credit card
authorization and inventory control. Banks use satellite networks to connect
automated teller machines to processing computers. News agencies use satellite
networks to distribute information continuously to numerous

10
<PAGE>

locations, and paging operators use satellite networks to distribute paging
information from a central switch to multiple remote transmitters for
retransmission to pagers.

Carrier Services

The largest portion of PanAmSat's revenues in the business communications
market is derived from the provision of satellite capacity to domestic and
regional communications carriers in Latin America. PanAmSat does not provide
substantial value-added services to such carriers. The provision of satellite
capacity to carriers involves relatively low marketing and operating costs,
while promoting the use of PAS-1 and PAS-3 for business communications in Latin
America. Carriers in Latin America that use PanAmSat satellite capacity include
Infosat of Venezuela, Telegan, S.A. of Colombia and Impsat of Argentina. U.S.
carriers include Sprint and MCI. In addition, the carrier Ji Tong of China and
PT. Primacom of Indonesia use capacity on PAS-2 and Transtel of South Africa
uses capacity on PAS-4.

Internet service providers also are using several PanAmSat satellites for
international Internet access. As of December 1996, PanAmSat's satellites
provided access to the U.S. Internet network for Internet service providers in
more than 20 countries in Latin America and Asia.

Governments currently represent one of the single largest users of
communications facilities. The U.S. government has stated that it intends to
move governmental traffic, particularly nonclassified military traffic, off of
dedicated satellites and onto commercial satellites. PanAmSat has participated
from time to time in bids for the U.S. Defense Department's procurements of
several commercial satellite transponders. PanAmSat has provided services
directly to the U.S. State and Defense Departments and currently is providing
services to the U.S. government as a subcontractor to government carriers. U.S.
government users accounted for approximately 2% of PanAmSat's total revenue for
the year ended December 31, 1996.

Private Networks

PanAmSat offers end-to-end satellite services for two types of private
business communications networks: International Digital Services ("IDS")
networks and very small aperture terminal ("VSAT") networks. IDS networks
consist of rooftop antennas and are used by customers that have relatively
steady flows of information to and/or from all of the points in the network.
Because of their large transmission requirements, IDS networks require
dedicated, permanent communication links to each point. VSAT networks differ
from IDS networks in that VSAT networks consist of very small (e.g., 1.2 to 1.8
meters) rooftop antennas and are utilized by customers that need to send short
bursts of data over the network for relatively short periods of time. Through
the use of VSAT technology and sophisticated software, these networks can be
served with a relatively small amount of satellite capacity.

In addition to providing satellite capacity, PanAmSat's services to its
business communications customers include the purchase and installation of on-
site antennas and the design, integration, management, operation and maintenance
of business networks. These services are provided by PanAmSat's teleports in
Ellenwood, Georgia, Homestead, Florida and Napa, California, or through
subcontractors. Examples of PanAmSat's business communications services using
PanAmSat's satellites and teleports include an IDS network linking Citicorp's
regional headquarters in Miami, Florida with eight locations in Latin America,
five other IDS networks for banks and another IDS network linking several of
Reuters' Latin American offices to Reuters offices in the United States.

Networks using VSATs have been growing rapidly to meet the specialized data
requirements of particular industries, such as banking, mining and retailing.
PanAmSat expects the international VSAT market to grow significantly in the
future. Recognizing both the demand for this service as well as the failure of
existing carriers to provide adequate VSAT services, many governments have
recently deregulated this market.

Telephony

Although PanAmSat was initially not permitted by the FCC to offer
international public telephone service between the United States and any other
country, PanAmSat currently provides domestic and international long-distance
telephony services. PanAmSat provides satellite capacity to domestic telephone
companies in Chile,

11
<PAGE>

Nicaragua and Honduras. PanAmSat also provides satellite capacity to Tricom, a
Dominican Republic-based carrier which provides international long-distance
telephone service between the United States and the Dominican Republic. Tricom
is currently the only international telephone carrier under contract with
PanAmSat.

Effective January 1, 1997, the FCC no longer restricts the number of public
switched circuits for fully connected telephone traffic that PanAmSat may carry.
See "--Government Regulation." The emergence of competition for long-distance
services and significant deregulation in several countries such as the United
Kingdom, Japan, Korea, New Zealand, Philippines and Australia has led PanAmSat
to believe that the long-distance telephony market offers PanAmSat future
opportunities globally.

DTH STRATEGY

PanAmSat has designed the Ku-band capacity on the PAS Global System (other
than PAS-1) with the capability of providing DTH services. PanAmSat's strategy
is to provide satellite capacity to customers that provide DTH services.
PanAmSat also contemplates facilitating the development of DTH service in
certain regions by providing satellite capacity and coordinating technical
issues with its customers, without direct investment in the DTH service,
although the Company may receive equity interests under certain circumstances in
connection with its provision of transponder capacity. Based on this strategy,
PanAmSat's satellites are platforms for current DTH services in Brazil, the
Middle East and South Africa and for planned DTH services in India and Spanish-
speaking Latin America.

As part of PanAmSat's digital DTH strategy, PanAmSat intends to provide
satellite capacity on PAS-3, PAS-5 and PAS-6 for digital DTH services in Latin
America, the Caribbean and certain areas of the southern United States. PanAmSat
believes there is significant demand for digital DTH service in these regions in
part because of the limited percentage of households that receive television
programming (except in the United States) through other transmission systems
such as cable and wireless cable and, in the United States, the limited amount
of Spanish-language programming available.

Pursuant to the DTH System in Latin America Memorandum of Understanding
entered into on March 27, 1995 (the "Original MOU"), PanAmSat and Televisa
intended to establish and operate a Ku-band digital DTH satellite broadcasting
business serving Latin America. The Original MOU was superseded and terminated
by the Revised DTH System in Latin America Memorandum of Understanding (the
"Revised MOU"), except with respect to certain indemnification obligations in
favor of the Company. Pursuant to Section 1.1 of the Revised MOU and certain
oral agreements in principle with Televisa, PanAmSat has obligations and rights
to purchase and acquire equity interests in the Latin America JVs and companies
formed to sell program services to consumers in the Iberian Peninsula (the "DTH
Options"). An affiliate of HCI is an investor in a venture that provides DTH
services in Latin America. HCI has made it a condition to the Merger, the
Univisa Contribution and the Asset Contribution that PanAmSat dispose of these
DTH Options. Accordingly, PanAmSat, Televisa and S Company have entered into
the DTH Option Purchase Agreement whereby immediately after the Share Repurchase
PanAmSat will sell the DTH Options to either Televisa, S Company and/or their
designees, for a purchase price of $225 million. The closing of the DTH Sale
will occur substantially concurrently with the receipt by S Company of the
consideration to be paid by New PanAmSat to it pursuant to the Univisa
Contribution Agreement.

DTH Services in Latin America

In November 1995, PanAmSat announced that it would serve as a satellite
service provider for the Latin America DTH service to be offered by Globo,
Televisa, News Corp. and TCI. On February 29, 1996, PanAmSat signed the 1996
Letter Agreement with Globo, Televisa and News Corp. to provide service to the
Latin America JVs on 48 transponders ultimately on PAS-5 and PAS-6, with
temporary service on PAS-3 pending the commencement of service on PAS-6. This
capacity would enable the Latin America JVs to broadcast to Latin America, the
Caribbean and certain areas of the southern United States approximately 500
digital channels to subscribers using small 24-36 inch (60-90 cm) antennas and
to permit distribution of program packages of approximately 120 digital channels
to specific market areas.

Under the 1996 Letter Agreement, Globo, Televisa, and News Corp. have
agreed to proportionally guarantee 100 percent of the fees for transponder
services to the Latin America JVs. These guarantee obligations

12
<PAGE>

may be assigned to TCI and, with PanAmSat's prior written consent, to new equity
participants in the Latin America JVs. PanAmSat will receive minimum service
fees equivalent to PanAmSat's best estimate of the cost per transponder to
PanAmSat of designing, launching, operating and insuring each satellite for
transponders used by the Latin America JVs. PanAmSat also will receive
additional revenue based on subscriber revenues of the Latin America JVs above a
certain threshold, except that the transponders that will be used by the Latin
America JV operating in Brazil will be charged on a fixed fee basis.

The 1996 Letter Agreement contemplates that three separate full-scale
transponder agreements will be entered into for the regions of (i) Brazil, (ii)
Mexico, including other Spanish- and Portuguese-speaking parts of North America
and (iii) Latin America (except Brazil and Mexico). The Brazil Transponder
Agreement has been entered into with respect to 12 transponders on PAS-6 for
Brazil, while the 1996 Letter Agreement remains in force as to the remaining 24
transponders on PAS-6 and 12 transponders on PAS-5 for the other regions.
Execution of full-scale transponder agreements for the other two regions is
subject to negotiation and no assurance can be given that such full-scale
transponder agreements will be executed. See "--Customers and Markets."

DTH Services in Spain

Pursuant to the Spain Transponder Agreement, PanAmSat will provide Televisa
Spain with transponder service from five PAS-3 Ku-band transponders, at least
three of which will be for the delivery of television services to Spain, which
may include DTH services. The transponder service fees reflect market rates. The
Spain Transponder Agreement is unaffected by the DTH Sale.

THE SATELLITES

Coverage Areas

PAS-1 and PAS-3 provide coverage of the Atlantic Ocean Region, and PAS-2
provides, and PAS-8 will provide, coverage of the Pacific Ocean Region. PAS-5
and PAS-6 will provide additional coverage of the Atlantic Ocean Region and PAS-
4 provides, and PAS-7 will provide, coverage of the Indian Ocean Region.
PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Accordingly, customers are able to contract solely
with PanAmSat for all of their international satellite needs.

Construction of PAS-6 has been completed and it has been delivered to the
launch site. PAS-5 and PAS-7 are under construction and their designs are
complete. The coverage areas of PAS-8 are in the design stage and therefore are
subject to change. The coverage areas of a satellite are determined by the shape
of the satellite beams and are not alterable after launch. However, certain of
the transponders on PAS-2, PAS-3, PAS-4, PAS-6, PAS-7 and PAS-8 may be
transferred from one beam to another if market conditions warrant and PAS-5 has
a moveable beam that can be focused over different regions.

PAS-1

PAS-1 provides four separate C-band coverage beams for all or parts of
Latin America and two Ku-band beams, one for the United States and one for
Europe.

One PAS-1 C-band beam provides nearly complete coverage of Latin America
and reaches the southern United States. Until March 1993, when PanAmSat began to
use CDV technology, all of the long-term capacity on

13
<PAGE>

this beam was sold out. See "Services--Video Distribution." As of December
1996, full-time broadcasters and programmers who use this beam included
Cinecanal, ESPN, NBC, USA and VCC.

The three other PAS-1 C-band beams focus coverage on different parts of
Latin America. As of December 1996, programmers using these beams on a full-time
basis included Cinecanal, CTC, HBO Ole, channels 2, 4, 5 and 13 (Peru), Sony,
Telefe (Argentina), Television Nacional de Chile and Warner Bros. These C-band
beams are also used for business communications services by Citicorp, Reuters,
Credit Suisse, Pacific National Bank and others. Carriers that use PAS-1 include
Telegan, S.A. of Colombia and Impsat of Argentina. The PAS-1 Ku-band beams are
used for broadcasting and business communication services between the United
States and Europe. Customers for this service include BBC, CBS News and NHK.

Upon the commencement of PAS-3 services on February 19, 1996, PanAmSat
started implementing a plan to migrate some broadcast customers from PAS-1 to
PAS-3, thereby providing additional PAS-1 capacity for business communications
services.

PAS-2

PAS-2 contains two C-band beams. These beams enable broadcasters to
distribute programming throughout Asia, Australia and New Zealand. One of these
beams also reaches across the Pacific Ocean to the western coasts of Canada and
the United States. Prior to the launch of PAS-2, U.S. programmers had to use one
satellite to cross the Pacific Ocean and another to distribute programming
within Asia. Because of PAS-2's coverage and high transmission power, North
American broadcasters can now distribute programming directly via PAS-2 from the
United States to Asia, and Asian broadcasters can distribute their programming
throughout Asia to North America. For instance, ESPN and Viacom are using PAS-2
for United States-to-Asia program distribution, while ABS-CBN (Philippines) is
using PAS-2 for intra-Asian distribution and access to the U.S. cable market.

Three Ku-band beams on PAS-2 provide high-powered coverage that is focused
on Korea, Japan, China, including Hong Kong and Taiwan, Australia and New
Zealand. For instance, Television Broadcasting International and Taiwan Asia
Space Cable are using PAS-2 Ku-band capacity for high-power program distribution
services throughout Taiwan.

PAS-3

PanAmSat has established PAS-3, in conjunction with PAS-1, as the leading
satellites for cable and television programming distribution in Latin America.
Certain broadcasting customers on PAS-1 have moved to PAS-3, and the resulting
available capacity on PAS-1 is being used primarily for broadcasting and
business communications services in Latin America. PAS-3's two C-band beams
provide nearly total coverage of North America, South America, Western Europe
and Africa. This coverage creates new options for broadcast distribution among
these four continents as well as expanding channel capacity in Latin America.

As of December 1996, PAS-3 customers for Pan-American C-band broadcast
services included Arab Radio and Television, Artear (Argentina), BBC, Bravo,
Caracol, China Central Television, Country Music Television, Discovery, ESPN,
20th Century Fox, HBO Ole, Liberty, NBC, Teledifusora Paraguaya, Televisa, TVN,
TV-5, Universidad Catolica and The Weather Channel. In addition, PAS-3 will
serve as an initial platform for the introduction of Latin America DTH services
offered by the Latin America JVs. It is also anticipated that PAS-3 will serve
as the platform for the Spain Transponder Agreement.

PAS-4

PAS-4 provides extensive coverage of the Indian Ocean Region with three C-
band and five Ku-band beams. The three C-band and five Ku-band beams provide
coverage of most of Europe, Africa, India and Asia, the Middle East and
Australia. The Ku-band transponders offer communications services to key regions
of economic activity including southern Africa, Far East Asia, Europe, India and
the Middle East. Due to the satellite's strategic orbital location and the
satellite's design, PanAmSat's customers are able to access the satellite from
as far east as Tokyo and as far west as Great Britain.

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<PAGE>

PAS-4 links together key regions of the world for broadcast distribution,
business communications and telephony services. For instance, broadcasters in
Europe using PAS-4 are able to reach the Far East and Australia directly over
one satellite.

Broadcast customers that use C-band capacity on PAS-4 for program
distribution in south Asia include Asia Business News, the BBC, China Central
Television, Discovery, Disney, Doordarshan, ESPN, HBO, Liberty, Home TV, Jain
TV, Sony, Turner Broadcasting and Viacom. Customers that use C-band capacity for
pan-African program distribution include M-Net/MultiChoice for its multichannel
digital C-band pan-African DTH platform and Viacom. In addition, M-
Net/MultiChoice and SABC/Sentech use PAS-4 Ku-band capacity to provide DTH
services in South Africa.

PAS-5

PAS-5 will be a high-powered satellite and will contain 24 Ku-band and 24
C-band transponders. Twelve of the satellite's 24 Ku-band transponders will be
used by the Latin America JVs to provide DTH services in Mexico, the Caribbean
and the southern United States. The C-band transponders have been designed to
provide coverage for broadcast distribution and other services in North America,
South America and Europe. It is anticipated that PAS-5 will serve as a platform
for the Latin America DTH Services offered by the Latin America JVs.

PAS-6

PanAmSat has designed PAS-6 to provide DTH services in Latin America. All
36 transponders will be used by the Latin America JVs to provide DTH services in
Latin America. Subject to FCC approval, PanAmSat plans to co-locate PAS-6 with
PAS-3. It is anticipated that PAS-6 will serve as the main platform for the
Latin America DTH Services offered by the Latin America JVs.

PAS-7

PAS-7 will be a high-powered satellite providing service over the Indian
Ocean Region. PAS-7 is expected to contain 14 C-band and 30 Ku-band transponders
and to be co-located with PAS-4. PAS-7 has been designed to expand upon the DTH,
broadcast and business communications services that are offered on PAS-4.

PAS-8

PAS-8 will be a high-powered satellite providing service over the Pacific
Ocean Region. PAS-8 is expected to contain 24 C-band and 24 Ku-band
transponders. PanAmSat's strategy with PAS-8 is to expand upon the broadcast and
business communications services that are offered on PAS-2. PAS-8 is in the
design stages and subject to change.

Operational and Expected Future Satellites

The PAS Global System will consist of the following eight satellites:

<TABLE>
<CAPTION>
PAS-1 PAS-2 PAS-3 PAS-4
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Region Covered.............. Atlantic Ocean Pacific Ocean Atlantic Ocean Indian Ocean

Expected Launch(1).......... Operational Operational Operational Operational

Satellite................... GE 3000 HS 601 HS 601 HS 601
Expected End of
Useful Life(3)............. 2001 2010 2010 2011
Orbital Location............ 45(degrees) W.L. 191(degrees) W.L. 43(degrees) W.L. 68.5(degrees) E.L.
TRANSPONDERS(7)
Ku-band.................... 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 16 @ 27 MHz
4 @ 64 MHz 4 @ 64 MHz 8 @ 54 MHz
C-band..................... 6 @ 72 MHz 12 @ 54 MHz 12 @ 54 MHz 12 @ 54 MHz
12 @ 36 MHz 4 @ 64 MHz 4 @ 64 MHz 4 @ 64 MHz

<CAPTION>
PAS-5 PAS-6 PAS-7 PAS-8
------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Region Covered.............. Atlantic Ocean Atlantic Ocean Indian Ocean Pacific Ocean

Expected Launch(1).......... 1997 1997 1998 1998

Satellite................... HS 601 HP SS/L FS-1300 SS/L FS-1300(2) SS/L FS-1300(2)
Expected End of
Useful Life(3)............. 2012 2012 2011 2013
Orbital Location............ 58(degrees) W.L.(4) 43(degrees) W.L.(4)(5) 68.5(degrees) E.L.(6) 194(degrees) W.L.(6)
TRANSPONDERS(7)
Ku-band.................... 24 @ 36 MHz 36 @ 36 MHz 30 @ 36 MHz 24 @ 36 MHz
C-band..................... 24 @ 36 MHz -- 14 @ 36 MHz 24 @ 36 MHz
</TABLE>

15
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Usable Band-
width (8).......... 1,296 MHz 1,808 MHz 1,808 MHz 1,768 MHz 1,728 MHz 1,296 MHz 1,584 MHz 1,728 MHz
OUTPUT POWER(9)
Ku-band............. 6 @ 16 16 @ 63 16 @ 63 24 @ 60 18 @ 100 36 @ 100 30 @ 100 24 @ 100
Watts Watts Watts Watts Watts Watts Watts Watts
6 @ 60
Watts
C-band.............. 6 @ 16 16 @ 30 16 @ 34 16 @ 30 24 @ 50 -- 14 @ 50 24 @ 50
Watts Watts Watts Watts Watts Watts Watts
12 @ 8.5
Watts
Total Output
Power(9)........... 294 Watts 1,488 Watts 1,552 Watts 1,920 Watts 3,540 Watts 3,600 Watts 3,700 Watts 3,600 Watts
</TABLE>
- --------------

(1) PAS-1 was launched in June 1988 and commenced commercial service in November
1988. PAS-2 was launched in July 1994 and commenced commercial service in
August 1994. PAS-4 was launched in August 1995 and commenced commercial
service in September 1995. PAS-3 was launched in January 1996 and commenced
commercial service in February 1996. Future launch dates are based on
PanAmSat estimates.
(2) PanAmSat has entered into a contract with SS/Loral for the construction and
delivery of PAS-7 and PAS-8, with options to purchase additional satellites
and/or replacement satellites for PAS-7 or PAS-8. The contract contemplates
delivery of PAS-7 in 1997 and PAS-8 in 1998.
(3) The information for PAS-1, PAS-2, PAS-3 and PAS-4 is based on fuel level
estimates at December 31, 1996. The information for PAS-5, PAS-6, PAS-7 and
PAS-8 is based on the terms of their satellite contracts, current mass
projections and their launch contracts. Based upon current launch vehicle
capabilities, each of PAS-5, PAS-6 and PAS-8 may have sufficient fuel to
achieve a significantly longer life, in excess of 20 years. The construction
design life of each satellite remains 15 years, which conservatively is the
basis for the predicted life specified above. PAS-7 also has a design life
of 15 years, but, SS/Loral has informed PanAmSat that it is expected to
exceed its contractual weight specifications. To ensure that the excess
weight does not affect the satellite's intended operational lifetime,
PanAmSat is exploring several options, including satellite modifications by
SS/Loral or the use of an alternative Ariane IV launcher configuration to
deploy the spacecraft.
(4) The application for PAS-5 is pending with the FCC. PanAmSat has received
conditional regulatory approval for PAS-6, which approval is subject to full
financial showing and demonstration of consultation with Intelsat.
(5) PanAmSat has requested FCC approval to co-locate PAS-6 with PAS-3. PanAmSat
expects to receive final authorization from the FCC to locate PAS-6 at
43(degrees) W.L. prior to its anticipated launch in May 1997.
(6) PanAmSat has received conditional regulatory approval for the orbital slot
of 72(degrees) E.L. from the FCC, which approval is subject to a full
financial showing and demonstration of consultation with Intelsat. In
addition, PanAmSat has requested approval to co-locate a satellite with PAS-
4 at 68.5(degrees) E.L. PanAmSat intends to locate PAS-7 at the
68.5(degrees) E.L. orbital location if its application for such orbital
location is granted, in which case the 72(degrees) E.L. orbital slot could
be used for another satellite. PanAmSat tentatively plans to locate PAS-8 at
194(degrees) W.L. and has an application for that orbital slot pending with
the FCC.
(7) Satellite transponders receive transmissions from Earth and relay them back
to Earth. Transponders are composed of receivers, preamplifiers, power
amplifiers, frequency shifters and a host of other electronics. C-band and
Ku-band are ranges of frequencies used worldwide for commercial satellite
communications. The C-band frequency is widely used for the distribution of
television programming. The Ku-band frequency is widely used for DTH
television broadcasting, satellite news-gathering applications and on-site
business communications networks that require the use of very small
antennas. Construction of PAS-6 has been completed and it has been delivered
to the launch site. The designs of PAS-5 and PAS-7 are complete. The design
for PAS-8 is still to be completed.
(8) Bandwidth is one measure of the information carrying capacity of a
transponder. A transponder's bandwidth and power together determine the
amount of information that can be carried. Construction of PAS-6 has been
completed and it has been delivered to the launch site. The designs of PAS-
5 and PAS-7 are complete. The design for PAS-8 is still to be completed.
(9) Output power is the transmitter power of each transponder and is not a
measure of the signal power received on Earth. Total output power is the
aggregate power of all the transponders on the satellite. High output power
allows for the use of smaller and less expensive receiving antennas to
obtain the satellite signal. Construction of PAS-6 has been completed and it
has been delivered to the launch site. The designs of PAS-5 and PAS-7 are
complete. The design for PAS-8 is still to be completed.

Types of Satellites

PAS-1 is a GE Series 3000 satellite with 12 36-MHz and six 72-MHz
transponders at C-band and six 72-MHz transponders at Ku-band. The satellite
offers coverage of the Americas and Europe. PAS-1 was launched in June 1988 and
has an expected in-orbit life of 13.25 years from the date of launch. PAS-1 has
not experienced any anomalies that have affected or which are expected to affect
the satellite's continued operation through its projected end-of-life. In late
1989, PAS-1 experienced a loss of approximately one half of the power on one
transponder. A spare amplifier was switched over to the transponder which
effectively restored the lost power. No problems occurred during the switchover,
and this transponder currently meets all performance specifications. In November
1992, PAS-1 experienced a loss of approximately one half the power on another
transponder in the same transponder bank. A spare amplifier was not available
because the spare amplifier assigned to the transponder bank had already been
switched to the transponder which experienced power loss in late 1989. However,
the transponder which experienced the power loss in November 1992 continues to
meet the performance requirements under PanAmSat's contracts with the two
customers which are using this transponder, and PanAmSat has given these
customers a nominal one-time credit related to this loss of power. See
"Insurance."

PAS-2 and PAS-3 are Hughes HS 601 satellites each with 12 54-MHz and four
64-MHz transponders at C-band and 12 54-MHz and four 64-MHz transponders at Ku-
band. PAS-2 offers coverage of Asia and western North America. PAS-3 offers
coverage of the Americas, Europe and Africa. PAS-2 was launched in July 1994
and

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has an expected in-orbit life of 15 years from the date of launch. PAS-2 has not
experienced any anomalies that have affected or which are expected to affect the
satellite's continued operation through its projected end-of-life. In February
1995, the satellite experienced a brief outage on one transponder amplifier and
a spare amplifier was switched over. An additional amplifier experienced a loss
of gain in January 1996 and a spare amplifier was switched over. No problems
occurred during these switchovers, and these transponders currently meet all
performance specifications. PAS-3 was successfully launched in January 1996, and
commenced service in February 1996. PAS-3 has an in-orbit expected life of 14 to
15 years from the date of launch. During in-orbit testing, a Ku-band amplifier
on PAS-3 was determined to be defective and a spare amplifier was switched over.

PAS-4 is a Hughes HS 601 satellite with 12 54-MHz and four 64-MHz
transponders at C-band and 16 27-MHz and eight 54-MHz transponders at Ku-band.
PAS-4 offers coverage of Europe, Africa, India and Asia, the Middle East, and
Australia. PAS-4 was successfully launched in August 1995 and commenced service
in September 1995. PAS-5 is also a Hughes HS 601 satellite designed to meet
PanAmSat's operational requirements. PAS-6 was constructed by SS/Loral.

The design of PAS-5 is complete and construction has commenced. PAS-5 is
expected to carry 24 36-MHz transponders at Ku-band and 24 36-MHz transponders
at C-band. PanAmSat expects that the satellite will be able to carry 96 to 120
digital program channels over Ku-band transponders for reception within the
satellite's coverage area by households equipped with 24-36 inch (60-90 cm)
antennas. The satellite also can be used for other broadcast and business
communications services employing small, low-cost antennas on the ground.
Construction of PAS-6 has been completed and it has been delivered to the launch
site. PAS-6 will carry 36 36-MHz transponders at Ku-band that will be able to
carry 288 to 360 digital program channels. PanAmSat has contracted with SS/Loral
to build PAS-7 and PAS-8. PAS-7 has been designed to contain 14 36-MHz C-band
and 30 36-MHz Ku-band transponders. PAS-8 is expected to contain 24 36-MHz C-
band and 24 36-MHz Ku-band transponders. PAS-8 is in the design stages and
subject to change.

When launched, each of PanAmSat's new satellites will have at least five
times (twelve times in the case of PAS-6) the transmission power of PAS-1. This
added power will allow PanAmSat and its customers to reduce their ground segment
costs significantly by allowing the use of smaller earth stations.

The new satellites will offer a high-powered, multi-beam design. The
provision of both C-band and Ku-band capacity on each satellite, except for PAS-
6, will give PanAmSat flexibility to meet its customers' needs for domestic,
regional and international communications services.

The C-band frequency is widely used for the distribution of television
programming. C-band is optimal for areas with relatively low levels of microwave
interference or relatively high levels of rainfall and in markets which have a
tolerance for a range of earth station sizes. C-band is currently widely used in
South America, Asia, Africa and the United States.

The Ku-band frequency is widely used for DTH television broadcasting,
satellite news gathering applications and on-site business communications
networks that require the use of very small antennas. Ku-band is optimal for
areas with high levels of terrestrial microwave interference and where small
earth stations are required due to zoning or other physical considerations or
market needs. Ku-band is utilized throughout Europe, Australia and Japan and,
increasingly, in North America.

The HAC PAS-5 Contract

PanAmSat has contracted with Hughes Aircraft Company ("HAC") for the
construction and delivery of PAS-5 (the "HAC PAS-5 Contract"). The HAC PAS-5
Contract calls for the delivery to support an early May 1997 launch. HAC has
notified PanAmSat that construction is delayed and that HAC will be able to
support a launch no earlier than late June 1997. After a specified grace period,
there will be liquidated damages payable by HAC in the event of a late delivery
which is the fault of HAC. Payments representing approximately 80% of the total
cost of the satellite will be made during the period of the satellite's
construction and upon completion of the satellite's in-orbit testing with the
remainder of such costs to be paid in the form of incentive payments based upon
the satellite's orbital performance over the 15-year period following launch.
PanAmSat has the option of prepaying the incentive obligations at any time. The
incentive obligations are subject to reduction or refund if the satellite fails
to meet specific technical operating standards. The HAC PAS-5 Contract provides
for a limited pre-launch warranty by

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HAC which requires HAC to correct or replace any non-conforming goods with
conforming goods, if such correction or replacement can be reasonably
accomplished as determined by HAC. If the delivery is delayed due to the fault
of PanAmSat, PanAmSat will be obligated to pay to HAC its reasonable costs
incurred as a result of the delay plus a profit component.

The SS/Loral Satellite Contract

PanAmSat has contracted with SS/Loral for the construction and delivery of
PAS-6, PAS-7 and PAS-8, and for the option to purchase up to two additional
satellites and up to four spare satellites (the "SS/Loral Satellite
Contract"). The SS/Loral Satellite Contract calls for the delivery of PAS-6,
PAS-7 and PAS-8 no later than November 10, 1996, August 4, 1997 and February 21,
1998, respectively. Despite the specified November 10, 1996 delivery date, PAS-6
was delivered to the launch site in March 1997. The Company expects completion
and delivery of PAS-7 in December 1997 followed by an anticipated launch in the
first quarter of 1998. In addition to the revised delivery schedule, SS/Loral
has informed the Company that it expects that the satellite will exceed its
contractual weight specifications. To ensure that the excess weight does not
affect the satellite's intended operational lifetime of approximately 15 years,
PanAmSat is exploring several options, including satellite modifications by
SS/Loral or the use of an alternative Ariane IV launcher configuration to deploy
the spacecraft. Payments representing approximately 80% of the total cost of
the satellite will be made during the period of the satellite's construction and
upon completion of the satellite's in-orbit testing with the remainder of such
cost to be paid in the form of incentive payments based on orbital performance
which will be made over the 15-year period following launch. PanAmSat has the
option of prepaying the incentive obligations at any time. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. The SS/Loral Satellite Contract provides
for a pre-launch warranty by SS/Loral which requires that the satellite be free
from defects and perform in accordance with technical specifications.

LAUNCH ARRANGEMENTS

Launch Services for PAS-5, PAS-6, PAS-7, PAS-8 and Future Satellites

PanAmSat expects to launch PAS-5 and PAS-8 on a Proton launch vehicle, PAS-
6 on an Ariane IV launch vehicle and PAS-7 on an Ariane IV or Ariane V launch
vehicle. Arianespace S.A. ("Arianespace") has had a successful launch rate of
approximately 93% since it began operations in May 1984 and an approximately 95%
success rate with the Ariane IV launch vehicle. The Ariane V is Arianespace's
latest-generation launch vehicle and is capable of carrying heavier payloads.
The first experimental launch of Ariane V suffered a launch failure on June 4,
1996. Arianespace is going forward with the development of Ariane V, but the
timing of the availability of Ariane V for commercial launches is uncertain. In
addition, on November 17, 1996, a Proton launch vehicle suffered a launch
failure, the second such failure in 1996. Preliminary indications are that the
failure may have been caused by the satellite and not the launch vehicle, and as
such PanAmSat does not believe that such failure will cause any delay to future
PanAmSat or Proton launches. An investigation of the failure has commenced, but
a final report has not been issued. Detailed information about the nature of the
launch failure or whether it will have an impact on the timing of the launch of
PAS-5 is not currently available.

PanAmSat has entered into a contract with Arianespace for the launch of
PAS-6, which is expected to be launched from Arianespace's launch base in French
Guiana. In connection with the delayed delivery of PAS-6, PanAmSat has amended
its launch agreement with Arianespace to specify an April 1997 launch slot (or
earlier if both PanAmSat and Arianespace can accommodate it) for PAS-6. However,
Arianespace has informed PanAmSat that because of a delay in its preceding
launch with another customer, the launch of PAS-6 will likely be delayed until
May 1997. In December 1995, PanAmSat signed a multi-launch service contract with
Arianespace for one firm launch, which PanAmSat currently plans to use for PAS-
7, and rights for additional launches. PanAmSat has exercised its rights for an
additional launch in late 1999 or early 2000 for an unspecified satellite.

Arianespace has indicated its ability to provide a first quarter 1998
launch to accommodate the delay in the construction of PAS-7. It may be
possible to negotiate an agreement with Arianespace for a more powerful launch,
but there can be no assurance that PanAmSat will be able to reach agreement with
Arianespace on the terms or timing of a more powerful launch than currently
specified in PanAmSat's launch contract.

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PanAmSat has entered into an agreement (the "LKE Launch Contract") with
Lockheed-Khrunichev-Energia International, Inc. (now known as International
Launch Services) ("LKE") which provides for launch services on the Proton launch
vehicle. The Proton, which is built in Russia and launched in Khazakhstan, has a
reliability rate of 94% over the last 50 launches. If the Proton is unavailable
due to technical, regulatory, or other factors, LKE would provide launch
services for at least one launch using an alternative launch vehicle. The LKE
Launch Contract provides for the launch of three of PanAmSat's satellites. It is
anticipated that two of these launches will be used for PAS-5 and PAS-8.
PanAmSat and LKE have agreed to a revised launch schedule for PAS-5 for July
1997.

PanAmSat has reached agreements with SS/Loral, Arianespace and LKE that
will give PanAmSat contractual rights for the construction and launch of
replacement satellite(s) within 12 months or less of the launch failure of any
one or more of PAS-5, PAS-6, PAS-7 or PAS-8, in all cases in less time than it
took for the replacement satellite for PAS-3 to be constructed and launched
after the original satellite suffered a launch failure. Based upon provisions
that PanAmSat has been able to negotiate in contracts for its existing in-orbit
satellites and negotiations thus far with respect to services for its future
satellites, PanAmSat believes that these contractual rights for replacement
satellite(s) will allow it to retain its anticipated customer contracts for
these satellites in most circumstances (as was the case when PAS-3 suffered a
launch failure), including in the event of a launch failure. However, any
further delay to the launch of PAS-6 or PAS-5 (more than currently anticipated)
could mean that replacement satellites, if required, would not be available in
time to avoid certain customers' rights to terminate their contracts with
respect to such satellites.

The launch contracts provide that PanAmSat may terminate such contracts at
its option, and the contracts include termination liability schedules that
increase in magnitude as the timing of any such termination approaches the date
of launch. The maximum liability, calculated in accordance with such schedules,
for launch services that have been ordered in connection with any individual
launch (including postponement fees) is approximately $45.0 million. Payments
made by PanAmSat prior to PanAmSat's election to terminate any such launch
contract are offset against any such liability owed. The launch contracts also
contain rights for replacement launches in the event of launch failures within
specified periods following request for relaunch.

Control of Satellites After Launch

Once a satellite is placed at its orbital location, ground stations control
it until the end of its in-orbit lifetime. PAS-1 is controlled under a long-term
tracking, telemetry & control ("TT&C") agreement by GE Capital Spacenet
Services, Inc. from PanAmSat's earth station facility located in Ellenwood,
Georgia. PanAmSat has an agreement with HCSS (and, in the case of PAS-5, with
HAC) whereby HCSS will provide TT&C services for PAS-2, PAS-3 and PAS-5 from
HCSS facilities, which will employ, in some cases, earth station facilities to
be supplied by PanAmSat. HCSS presently provides TT&C services for twelve
satellites in orbit. PanAmSat has an agreement with Optus Networks Pty Limited
("Optus"), a leading supplier, for the provision of TT&C for PAS-4. Optus is a
recognized provider of such services with experience in maintaining Hughes'
satellites in orbit at locations that are outside of the look angle of Hughes'
U.S. facilities. PanAmSat and SS/Loral have an agreement pursuant to which
SS/Loral would provide TT&C service for PAS-6, PAS-7 and PAS-8.

Insurance

Under the satellite construction contracts, the contractor generally bears
the risk of loss of a satellite during the construction phase up to the
delivery, at which time title and risk of loss pass to PanAmSat (at which time
the launch insurance will become operative).

In January 1996, PanAmSat obtained launch insurance for the construction,
launch and insurance costs for future satellites at a contracted premium rate of
16% of the amount insured for PAS-5, PAS-6, PAS-7 and PAS-8. In April 1996,
PanAmSat obtained launch insurance for the construction, launch and insurance
costs at a contracted premium rate of 16% for PAS-9/R. The Certificate of
Designation (the "Certificate of Designation") for the Preferred Stock
contains, and the Indenture (the "Exchange Indenture") relating to PanAmSat's
12-3/4% Senior Subordinated Notes due 2005 (the "Exchange Debentures") would
contain covenants requiring PanAmSat to obtain launch insurance for PAS-5 and
PAS-6 sufficient to cover the estimated cost of construction, launch and launch
insurance for a replacement satellite in the event of a total launch failure up
to a maximum of $230 million.

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Coverage under PanAmSat's launch insurance will include claims arising from
occurrences up to 180 days after the launch. As a general matter, however,
PanAmSat anticipates that the insurance coverage will include not only
catastrophic loss of a satellite during launch but also the failure of a
satellite to obtain proper orbit or to perform in accordance with specifications
once in orbit. If 50% or more of a satellite's capability is lost, then a
constructive total loss is deemed to have occurred, and the full amount of
insurance would become due and payable. If the satellite is able to achieve more
than 50% but less than 85% of its performance specifications, PanAmSat will be
entitled to a portion of the amount of the insurance after taking into account a
deductible equivalent to no more than 15% of the satellite's capability. Losses
are measured in transponder years with Ku-band transponders weighted as 1.25
times the value of C-band transponders.

The insurance policies include standard commercial launch insurance
provisions and customary exclusions including (i) military or similar actions,
(ii) laser, directed-energy or nuclear anti-satellite devices, (iii)
insurrection and similar acts or governmental action to prevent such acts, (iv)
governmental confiscation, (v) nuclear reaction or radiation contamination, (vi)
willful or intentional acts of PanAmSat or its contractors, (vii) loss of
market, loss of revenue, extra expenses, incidental and consequential damages,
and (viii) third-party claims against PanAmSat.

Over the period from 1989 to 1996, the risk of an insured commercial
satellite failing prematurely due to, among other things, mechanical failure, a
collision with objects in space or an inability to maintain proper orbit, was
approximately 1.6%. In-orbit insurance is typically purchased after a satellite
has been satisfactorily tested in-orbit, and coverage would commence upon
expiration of the launch insurance. The covenants under the Indenture dated as
of August 5, 1993 (the "Senior Secured Note Indenture"), among PanAmSat,
PanAmSat Capital Corporation ("PanAmSat Capital") and First Trust National
Association, as trustee, pursuant to which the Senior Secured Notes were issued,
and the Indenture dated as of August 5, 1993 (the "Discount Note Indenture,"
and together with the Senior Secured Note Indenture, the "1993 Indentures"),
among PanAmSat, PanAmSat Capital and U.S. Trust Company of New York, as trustee,
pursuant to which the Discount Notes require PanAmSat to maintain in-orbit
insurance for PAS-1, PAS-2, PAS-3 and PAS-4 in specified amounts. The
Certificate of Designation requires, and the Exchange Indenture would require,
PanAmSat to maintain in-orbit insurance for PAS-1, PAS-2, PAS-3, PAS-4, PAS-5
and PAS-6. As of December 31, 1996, PanAmSat carried approximately $60.0 million
of in-orbit insurance for PAS-1, $192.0 million of in-orbit insurance for PAS-2
(which amount decreases on a straight-line basis over the estimated useful life
of the satellite), $219.8 million of in-orbit insurance for PAS-3 (which amount
decreases on a straight-line basis over the estimated useful life of the
satellite), and $216.5 million of in-orbit insurance for PAS-4 (which amount
decreases on a straight-line basis over the estimated useful life of the
satellite). PanAmSat is presently exploring its insurance options with respect
to in-orbit coverage of each of PAS-5 and PAS-6 and intends to obtain in-orbit
insurance initially for approximately 96% of the construction, launch, and
insurance costs of each satellite, as well as for PAS-7, PAS-8 and PAS-9/R.
PanAmSat renewed its in-orbit insurance on PAS-1 in 1996 at an increased
contracted annual premium rate of 3.75% of the coverage provided thereby. This
increase is attributable to certain anomalies which appeared in 1995, in the
performance of one of the command receivers on PAS-1. PanAmSat has put in place
certain operational procedures which are designed to prevent the recurrence of
these anomalies. The contracted annual premium rate for PAS-2, PAS-3 and PAS-4
in-orbit insurance is 2.15% of the coverage provided thereby.

Coverage under PanAmSat's in-orbit insurance will include claims arising
from occurrences subsequent to 180 days after the launch. The insurance coverage
includes the failure of a satellite to continue to perform in accordance with
specifications. If 50% or more of a satellite's remaining capability is lost,
then a constructive total loss is deemed to have occurred, and the full amount
of insurance would become due and payable. If the satellite is able to maintain
more than 50% but less than 90% of its performance specifications, PanAmSat will
be entitled to a portion of the amount of the insurance after taking into
account a deductible equivalent to not more than 10% of the satellite's
capability. PanAmSat's in-orbit policies typically include customary commercial
satellite insurance exclusions, including, among other things, damage or loss
caused by military actions or acts of war, anti-satellite devices, government
action, frequency interference or nuclear reaction.

Sales and Marketing

PanAmSat's sales and marketing activities are separated into three general
service areas: full-time program distribution; part-time and ad hoc broadcast;
and business communications and long-distance telephony.

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PanAmSat's Greenwich headquarters has a sales and marketing department for
each service area. PanAmSat also has sales and marketing offices in Coral
Gables, Florida, Sydney, Australia, London, England, Tokyo, Japan and
Johannesburg, South Africa, which provide integrated sales and marketing for all
three service areas in their respective regions. The senior executive officers
of PanAmSat have been directly involved in marketing to key broadcasting and
business communications customers.

COMPETITION

PanAmSat competes with companies and organizations which own or utilize
satellite or terrestrial transmission facilities. Many of such entities have
greater financial resources than PanAmSat.

Other Satellite Operators

PanAmSat's largest competitor in the international satellite communications
industry is Intelsat. Intelsat's mandate, established by international treaty,
is to provide international satellite capacity on a non-discriminatory basis to
countries around the world. Since its formation in 1964, Intelsat's primary
business has been the provision of satellite capacity for long-distance
telephony circuits. Historically, Intelsat has made available only a small
fraction of its transponders on each of its satellites for broadcasting
services. Comsat is the U.S. signatory of Intelsat and is the exclusive
wholesale marketer of Intelsat satellite capacity in the United States.

Intelsat's satellites have historically been general purpose, lower-powered
satellites designed to serve large areas with public telephone service
transmitted between large and expensive gateway earth stations. The technical
features of Intelsat's satellites have not been well suited for services such as
programming distribution and business communications networks, which involve
large numbers of small earth stations. Intelsat's marketing flexibility is
limited because it generally provides capacity directly to its signatories who
then market such capacity to their customers. This marketing structure has
hindered Intelsat from marketing directly to customers and has greatly increased
the administrative procedures and costs involved in obtaining satellite services
from Intelsat.

In recent years, Intelsat has responded to international and regional
competition from private satellite systems by purchasing higher power
satellites, offering focused regional coverage and pursuing arrangements which
are designed to permit broader marketing and support of its services, including
establishing regional Intelsat offices. Intelsat has also begun to shift away
from its historical focus on international telephony services towards providing
television and business communications network services. For example, in October
1994, Intelsat's assembly of parties decided on a classification of its proposed
DTH services that will make it easier for Intelsat to provide DTH services.
Intelsat currently operates satellites that are capable of providing DTH
services in Latin America and is considering the purchase and launch of a
dedicated DTH satellite to serve Latin America. In December 1996, Intelsat
approved a proposal to construct a satellite for DTH services in the Asia-
Pacific Region. There can be no assurance that Intelsat will not obtain a
competitive advantage over PanAmSat for broadcasting and business communications
services. In February 1996, Comsat and the Clinton Administration agreed to
submit a proposal regarding Intelsat restructuring that would divide Intelsat
into two separate entities through the creation of a new Intelsat affiliate
company. Comsat has been discussing the proposal with other Intelsat
signatories, but based on trade press reports it appears that the proposal has
little or no support outside the United States. Intelsat is also considering
other proposals and is expected to take up the issue of restructuring at the
1997 meeting of its member governments. If the joint proposal or any other
proposal on restructuring is approved and an affiliate company of Intelsat is
established, this could result in increased competition to PanAmSat.

For regional television distribution outside of the United States,
broadcasters use, among others, Arabsat (Middle East), Eutelsat (Europe), Astra
(Europe), AsiaSat and APStar (Asia), Columbia Communications Corp. (Atlantic and
Pacific Ocean regions), Orion Network Systems, Inc. ("Orion") (Atlantic Ocean
region) and Palapa (Southeast Asia) and, to a lesser extent, Intelsat. While
these entities are active in regions in which PanAmSat plans to provide
facilities and services, only Intelsat is a global system. Countries that have
domestic satellite systems include Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Italy, Japan, Malaysia, Mexico, Russia, South Korea,
Spain, Thailand, Turkey and the United States. Argentina, Brazil, Malaysia,
Mexico and Thailand also provide regional services on their domestic satellites.

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For example, AsiaSat, a private regional satellite operator based in Hong
Kong, has granted an exclusive right for international program distribution on
its current AsiaSat-1 satellite to one broadcaster, StarTV. StarTV requires
broadcasters to distribute their programming under the StarTV name and also
requires broadcasters to share a portion of their revenues with StarTV. AsiaSat-
1 also offers satellite capacity for business communications and voice services.
In 1995, AsiaSat launched the AsiaSat-2 satellite on a Chinese rocket and
published reports indicate that AsiaSat has entered into a lease for satellite
capacity with StarTV which was also granted an exclusive right for international
programming distribution on AsiaSat-2.

Proposed Satellite Systems

Other companies have announced plans to operate regional or transoceanic
satellite systems. Entry into the international satellite communications
industry can be expensive and difficult. The construction and launch of a
satellite comparable to PanAmSat's new satellites usually takes approximately
three or more years and costs approximately $200 million to $250 million. In
addition, there are a limited number of orbital slots. The operation of an
international satellite communications system also requires approvals from
national telecommunications authorities and Intelsat and, in certain cases, from
regional satellite authorities, such as Eutelsat. See "Government Regulation."
While the trend around the world is to liberalize these regulatory requirements,
at present obtaining the necessary licenses involves significant time, expense
and expertise.

Orion has announced plans to construct and launch an additional satellite
in mid-to late 1997 in the Atlantic Ocean Region and a satellite thereafter in
the Asia-Pacific region.

Two Japanese domestic satellite operators plan to provide regional service
throughout the Pacific Ocean Region. The first of three satellites was launched
in August 1995. In January 1996, GE Capital Satellites International Inc.
announced that the government of Gibraltar had filed applications on its behalf
with the ITU for 12 orbital slots in which to operate satellites serving Africa,
Asia and the Pacific Rim.

Countries planning to launch domestic satellites include Egypt, Laos and
the Philippines.

Service Providers

A number of U.S.-based service providers offer business communications
services in competition with PanAmSat through Intelsat satellite capacity
including Comsat, MCI and Sprint. In addition, MCI and Sprint are users of
PanAmSat's satellites when they seek to use satellites for part or all of the
network services they offer their customers. Certain service providers, such as
Keystone Communications, utilize leased satellite capacity to provide limited
services to broadcasters, primarily for ad hoc applications.

Optical Fiber Cables

Optical fiber cables generally do not compete with PanAmSat's services. The
primary use of optical fiber cables is to carry high-volume telephony
communications on a point-to-point basis, a market PanAmSat does not intend to
enter. Transcontinental optical fiber cables currently carry video traffic, but
this service is largely for point-to-point traffic (e.g., New York to London).
Optical fiber cables are not readily usable for point-to-multipoint broadcast
applications or for the transmission of ad hoc events which require short-term
satellite capacity and transportable uplink earth stations. These areas are
expected to constitute the largest segments of PanAmSat's broadcasting services.

U.S. Domestic Satellites

The FCC traditionally has not permitted U.S. domestic satellites to provide
international service except in limited circumstances. However, on January 22,
1996, the FCC released a decision permitting all U.S.-licensed satellites to
provide both domestic and international services without regard to whether the
satellites initially had been licensed as domestic satellites or separate
international systems. In practice, however, most existing U.S. domestic
satellites are designed to serve principally the United States. The FCC's
decision also authorized direct broadcast satellite systems licensed by the FCC
to provide international service.

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Government Regulation

The international communications environment is highly regulated. As an
operator of a privately owned international satellite system, PanAmSat is
subject to the regulatory authority of the U.S. government (primarily the FCC)
and the national communications authorities of the countries in which it
operates. In addition, PanAmSat is subject to the Intelsat consultation process
as described below, which can result in the imposition of operational
restrictions on PanAmSat. While PanAmSat has all necessary licenses and
governmental approvals for the construction, launch and operation of PAS-1, PAS-
2, PAS-3 and PAS-4, there can be no assurance that PanAmSat will succeed in
obtaining all requisite regulatory approvals for PAS-5, PAS-6, PAS-7 and PAS-8
and for the orbital slots planned for these satellites without the imposition of
operational restrictions on PanAmSat.

U.S. Regulation

The FCC is the governmental body with primary authority in the United
States over all satellite carriers.

1. Licensing Terms

PanAmSat is not regulated as a common carrier. As a non-common carrier
PanAmSat is free to set prices and serve customers according to its business
judgment, without rate of return or price cap regulation or requirements not to
discriminate among customers, and with minimal governmental scrutiny of its
business decisions. PanAmSat is subject to the FCC's review primarily for: (i)
the licensing of individual satellites and earth stations (e.g., meeting minimum
financial, legal and technical standards); (ii) avoidance of interference with
other radio stations; and (iii) compliance with rules the FCC has established
specifically for U.S.-based international satellite companies.

PanAmSat's original license from the FCC prohibited it from carrying any
traffic to or from the United States that interconnected with a public switched
telephone network ("PSTN"). This restriction was designed to protect
Intelsat's public switched telephone services business from competition and
broadly precluded any separate international satellite company, such as
PanAmSat, from any connection, direct or indirect, into the PSTN on either side
of a circuit that enters or leaves the United States. Thus, a customer could not
terminate a private line carried by PanAmSat into a switchboard that would
switch the call into the PSTN, either in the United States or at the other end
of the circuit.

In subsequent decisions, the FCC authorized PanAmSat to provide a wide
range of services involving the PSTN. In response to a petition filed by
PanAmSat with the FCC, and in recognition of changed conditions, the FCC in
March 1992 modified this restriction to permit carriage of 1,250 64-kbps bearer
circuits of fully connected telephone traffic per satellite and stated its
intention to eliminate this restriction entirely by January 1, 1997. In March
1994, the FCC reaffirmed the 1,250 64-kbps bearer circuit standard for public
switched services and authorized PanAmSat to provide an unlimited number of
private lines that are connected to the PSTN. The interconnected private lines
are subject to resale restrictions and to restrictions against using the
interconnected private lines to provide public switched telephone service. In
October 1994, Intelsat increased the threshold below which Intelsat presumes
private international satellite systems do not cause economic harm to 8,000 64-
kbps bearer circuits per satellite. In November 1996, the FCC brought its
policies into line with this new standard, and effective January 1, 1997, the
FCC no longer restricts the number of public switched circuits that PanAmSat may
carry. For purposes of Intelsat consultation, however, the presumption that
private international satellite systems do not cause economic harm continues to
be limited to systems carrying 8,000 64-kbps bearer circuits or less per
satellite. The FCC's previous separate system policies restricted PanAmSat's
ability to provide U.S. domestic service, subject to certain exceptions. On
January 22, 1996, however, the FCC released a decision abolishing those
restrictions and also permitting all U.S.-licensed satellites to provide
international service.

The FCC has granted PanAmSat Carrier Services, Inc. ("PCSI"), a wholly
owned subsidiary of PanAmSat, authority, pursuant to Section 214 of the
Communications Act of 1934, as amended (the "Communications Act"), to provide
international private line and public switched services via the PAS-1 satellite
on a common carrier basis. Although PCSI is a common carrier, PanAmSat will
continue to operate as a non-common carrier.

23
<PAGE>

2. Authorization to Construct, Launch and Operate Satellites

PanAmSat has conditional or final authorization from the FCC for a total of
five satellites. The U.S. government has filed with the ITU for, among other
things, all of PanAmSat's orbital slots for PAS-1 through PAS-8. See
"International Telecommunications Union."

PanAmSat is licensed by the FCC to operate PAS-1 in geostationary orbit at
45(degrees) W.L. PanAmSat is required to engage in frequency coordination with
other satellite operators. These include Orion Satellite Corporation, which has
an FCC authorization for an international satellite in the orbital location
adjacent to PAS-1. Orion has taken the position that PanAmSat must accept
interference from Orion's satellite because PAS-1 does not have "full frequency
reuse," while PanAmSat has disputed this position. The FCC has suggested that
Orion's position is incorrect, but stated that it will not rule definitively on
the issue unless the parties are unable to resolve their differences by
frequency coordination. Orion announced in 1993 that it had canceled its
contract for construction of the satellite which was intended for this orbital
slot but reaffirmed its intention to build such satellite at an unspecified
later date.

PanAmSat is licensed to operate PAS-2 in geostationary orbit at
191(degrees) W.L. PAS-2 was launched in July 1994.

PanAmSat is licensed to operate PAS-3 in geostationary orbit at 43(degrees)
W.L. PAS-3 was launched in January 1996.

PanAmSat is licensed to operate PAS-4 in geostationary orbit at
68.5(degrees) E.L. PAS-4 was launched in August 1995.

PanAmSat has obtained conditional regulatory approval from the FCC to
construct, launch and operate PAS-6 at 43(degrees) W.L., where it would be co-
located with PAS-3 over the Atlantic Ocean Region in order to provide DTH
television services throughout Latin America.

PanAmSat has obtained conditional regulatory approvals from the FCC to
construct, launch, operate and locate a satellite at 72(degrees) E.L. (over the
Indian Ocean Region), subject to a full financial showing and demonstration of
consultation with Intelsat. In addition, PanAmSat has requested approval to co-
locate a satellite with PAS-4. PanAmSat intends to locate PAS-7 at the
68.5(degrees) E.L. orbital location if its application for such orbital location
is granted. PanAmSat has requested a waiver that would enable its 68.5(degrees)
E.L. co-located application to be processed under the pre-existing separate
system policies, rather than under recently-adopted new FCC processing policies
under which the FCC would not process the application until it had completed
processing of all domestic satellite and separate system applications that were
pending when the FCC adopted the new processing policies on January 19, 1996. If
these policies were to apply, then after the FCC had finished processing pending
applications it would issue a public notice establishing a new processing round
including the 68.5(degrees) E.L. application and any other applications filed in
response to the public notice. Absent a waiver, therefore, processing could be
substantially delayed beyond the anticipated PAS-7 launch, which is scheduled
for the third quarter of 1997. No delay would occur if PanAmSat elects to
position PAS-7 at 72(degrees) E.L.

None of these final or conditional authorizations, as appropriate, is
subject to further administrative or judicial reconsideration or review. The FCC
reserves the right to require the repositioning of a satellite's orbital slot if
the FCC determines that it is in the national interest that such a change be
made. The FCC has rarely used this authority.

PanAmSat's conditional construction authorizations, by themselves, do not
entitle PanAmSat to expend funds toward the construction of its satellites.
Accordingly, from time to time PanAmSat has requested and received waivers
pursuant to Section 319(d) of the Communications Act from the FCC permitting
such expenditures in specified amounts.

PanAmSat also has pending FCC applications for the following satellites:
PAS-8, to be located at 194(degrees) W.L. (over the Pacific Ocean Region) and
PAS-5 at 58(degrees) W.L. (to supplement the capacity of PAS-1 and PAS-3).
PanAmSat may request approval to co-locate PAS-8 with PAS-2.

24
<PAGE>

Final FCC authorization for each of PanAmSat's satellites and orbital slots
is subject to demonstration that PanAmSat has sufficient funds to construct,
launch, and operate the satellite for one year and completion of the Intelsat
consultation process with at least one country in addition to the United States.
The FCC recently revised its financial qualification requirements for separate
system applicants, requiring that such applicants make a full financial showing
at the time they file. The FCC's decision gives applicants whose applications
are already on file an opportunity to amend their applications to conform to the
new financial requirements. Applications that were filed prior to April 25, 1995
are "grandfathered" and need not comply. Applications that were filed after
that date and that specified "uncongested" portions of the orbital arc may,
upon "appropriate request," defer their full financial showing pursuant to the
two-step financial standard that previously was applicable to separate systems.
PAS-5 and PAS-8 are grandfathered under the new rules, and PanAmSat has
requested that PAS-6 and PAS-7 be processed under the pre-existing two-step
financial standard. PanAmSat therefore believes that these new financial
requirements will not materially affect its ability to obtain final authority
for PAS-5, PAS-6, PAS-7 and PAS-8. There can be no assurance, however, that
these new requirements will not materially affect the ability of PanAmSat to
obtain final authority for any future satellites.

PanAmSat also has filed applications for satellites at 79(degrees) W.L.
(PanAmSat has informally requested that the FCC associate this application with
the 81(degrees) W.L. orbital location) and at 93(degrees) W.L. These
applications, as well as the applications and authorizations discussed above for
PAS-1 through PAS-8, all involve operations on C-band and Ku-band frequencies.
If these two applications are granted, the FCC would have to assign different
orbital locations because it since has assigned the 79(degrees) W.L. and
93(degrees) W.L. locations to other applicants. In addition, PanAmSat has filed
applications for nine Ka-band satellites. Two of the nine applications were
filed within the deadline for the first Ka-band "processing group" and the FCC
tentatively has assigned to PanAmSat the orbital location it requested in one
application subject to final action on its application for the orbital location.
Pursuant to an agreement among all the Ka-band applicants that is subject to FCC
approval, PanAmSat expects to be assigned a second Ka-band orbital location. The
remaining seven applications were filed after the deadline, and the FCC's
International Bureau denied PanAmSat's request to reopen the initial Ka-band
processing round. Unless that decision is reversed on review or appeal, the
seven applications might not be processed until the FCC commences a second Ka-
band processing round. The FCC has an ongoing rulemaking process to determine on
what basis it will authorize applicants to construct, launch and operate
satellites in the Ka-band.

The frequencies that are intended to be used to uplink to PAS-7 and PAS-6
include frequencies in the 13.75-14.0 GHz band, which constitute approximately
33% of the frequencies of PAS-6 and approximately 80% of the Ku-band frequencies
on PAS-7. These frequencies must be coordinated with the U.S. government on an
earth-station-by-earth-station basis to insure that harmful interference to
primary government operations is minimized. PanAmSat presently is undertaking
such coordination and believes that it will be able to coordinate successfully
with federal government users. While PanAmSat believes that it will successfully
coordinate with such earth stations or will institute operational solutions that
will mitigate the problem, there can be no assurance that PanAmSat's efforts
will be successful.

3. Intelsat Consultation

Prior to receiving final licensing and launch authority, and prior to
offering services between the United States and any overseas point, PanAmSat has
to complete a consultation with Intelsat under Article XIV of the Intelsat
Agreement. This requires arranging for the U.S. government and the appropriate
governmental authority in at least one overseas point to consult with Intelsat
to assure that use of the new satellite will cause Intelsat neither technical
harm arising from signal interference nor "significant economic harm."
Thereafter, in order to provide services involving additional countries, those
countries have had to associate with the prior Article XIV consultation. In
September 1994, Intelsat's board of governors eliminated the association
requirement. To provide domestic services in any country other than the United
States, PanAmSat need only make the technical showing. For PAS-1, the first
private international satellite to go through the process, the consultation
process was extremely difficult, as Intelsat initially took the view that any
separate system would cause significant economic harm. Over time, however,
Intelsat has modified its views. In November 1992, Intelsat adopted a resolution
indicating that it will no longer scrutinize for significant economic harm any
satellite services that do not connect with the public telephone network or
which do not provide more than 1,250 64-kbps bearer circuits connecting to the
PSTN per satellite. In October 1994, Intelsat approved an increase in this
limitation to 8,000 64-kbps bearer circuits per satellite, and in November 1996,
the FCC brought its policies into line with this new standard. The FCC is

25
<PAGE>

responsible for ensuring that PanAmSat has undergone the necessary consultation
and that it operates in accordance with the technical parameters forming the
basis for an Article XIV consultation. If PanAmSat changes the terms (either
technical or service) of its operation in a significant way, it may need to
reconsult with Intelsat.

Overseas National Telecommunications Authorities

PanAmSat is the first private company to provide global (excluding domestic
U.S.) satellite services. Most countries where PanAmSat operates are signatories
of Intelsat. As a result, their national telecommunications authorities may
require confirmation that PanAmSat successfully completed technical coordination
with Intelsat before providing services on a given satellite. Beyond this
consultation, PanAmSat may be subject to national communications and/or
broadcasting laws. While these vary from country to country, national
telecommunications authorities have not typically required PanAmSat to obtain
licenses or regulatory authorizations in order to provide space segment capacity
to licensed entities. PanAmSat believes that Argentina, Colombia and Pakistan
are the only countries in which PanAmSat currently operates that require
national regulatory approval for the provision of space services to licensed
carriers. PanAmSat has obtained authorization from the Argentine National
Telecommunications Commission to provide services on PAS-1 and PAS-3 in
Argentina, and has applied for authorization for PAS-6. Recent changes in the
law in Argentina, however, appear to limit the circumstances in which non-
Argentinian satellites may be used to provide certain satellite services in
Argentina. PanAmSat will oppose these measures vigorously to the extent the
measures are determined to apply to PanAmSat's satellite system. There can be no
assurance, however, that PanAmSat will be able to obtain the authorizations
needed to serve customers in Argentina in the future or to avoid having its
existing authorizations circumscribed in a manner that adversely affects its
ability to serve existing customers in Argentina. PanAmSat has also received
regulatory approval in Pakistan.

National laws and regulatory practices governing access to satellite
systems vary substantially among countries. Many countries have liberalized
their national communications market, allowing multiple entities to seek
licenses to provide voice, data or video services for their own use or for
third-party use; to own and operate private earth station equipment; and to
choose a provider of satellite capacity. Many countries allow licensed radio and
television broadcasters and cable television providers to own their own
transmission broadcast facilities and purchase satellite capacity without
restriction. In such environments, customer access to PanAmSat's services can be
a relatively simple procedure. PanAmSat may provide services through one or many
licensed carriers or to end-users of private network services directly. Such
liberalization policies have been adopted in most Latin American countries and,
increasingly, in Europe, Africa and Asia.

In several countries, PanAmSat has chosen to apply to national
telecommunications authorities to obtain licenses for provision of services
directly to end users. In Ecuador, France, Germany, Japan and the United
Kingdom, PanAmSat has obtained licenses covering its operations which permit
PanAmSat to provide certain services directly to end users. In Colombia and
Peru, PanAmSat has requested from the national telecommunications authorities
its own licenses to service customers directly.

Other countries, however, have maintained strict monopoly regimes, so that
end-users may be required to access PanAmSat's services through a single,
government owned entity. In such markets, the entity (often the Posts, Telephone
and Telegraph authority, or the "PTT") may hold a monopoly on ownership and
operation of facilities or on the provision of communications and/or
broadcasting services to, from and within a country, including via satellite. In
order to provide services in such environments, PanAmSat may be required to
negotiate an operating agreement with the PTT that describes the types of
services offered by each party, the contractual terms for service and each
party's rates. Depending on the national regulatory requirements, these
operating agreements may require that PanAmSat's services be obtained through
the PTT alone at a pre-arranged markup, with all associated ground services
provided by the PTT; or the operating agreement may allow customers to own and
operate their own facilities but purchase PanAmSat's services through the PTT at
a rate reflecting the pre-arranged markup.

Notwithstanding the wide variety of regulatory regimes extant in the
countries where PanAmSat currently provides service, PanAmSat believes that
PanAmSat and its customers are in compliance in all material respects with all
applicable laws and regulations governing its operations.

26
<PAGE>

International Telecommunications Union

Nations are required to register their proposed use of orbital slots with
the Radio Regulations Board of the ITU (formerly the International Frequency
Registration Board) (the "ITU Radio Regulations Board") to ensure that there
is an orderly process for accommodating each country's needs for orbital
locations. After a nation has advised the ITU Radio Regulations Board of its
desire to use a given orbital location at a given frequency, other nations may
give notice of their use or intended use in a manner that would conflict with
the first proposal. The nations are then obligated to negotiate in an effort to
coordinate the proposed uses and resolve interference concerns. The FCC takes
responsibility for filing and coordinating PanAmSat's orbital slots with the ITU
Radio Regulations Board. If all disputes are resolved, the nations requesting
proposed uses may be formally notified, which, theoretically, provides
interference protection from subsequent or nonconforming uses. The ITU Radio
Regulations Board has no dispute resolution or enforcement mechanisms, however,
and if the nations cannot agree upon a coordination or upon resolution of an
interference problem, there are no clear remedies under international law.
Although PAS-1 has been operating since 1988, Brazil has not yet withdrawn
certain objections which it raised to PAS-1's orbital slot, and, accordingly,
the FCC has never received final notification from the ITU Radio Regulations
Board that PAS-1's orbital slot has been finally registered. PanAmSat believes
that Brazil's objections will not adversely affect PanAmSat's ability to
continue to operate PAS-1.

The government of Papua New Guinea and the government of Tonga have filed
notices of intended use that potentially conflict with the registrations for
PAS-2, PAS-4 and PAS-8. The government of Tonga has filed conflicting claims for
orbital slots with regard to other ITU Radio Regulations Board filings in the
past, but neither the government of Tonga nor the government of Papua New Guinea
(whose filing that potentially conflicts with PAS-2 dates back to the mid-1980s)
has ever launched a satellite. On September 12, 1994, however, an agreement was
announced between an agent of Tonga and APT Satellite to locate APStar-1 at
138(degrees) E.L., an orbital location that Tonga had filed for at the ITU.
Moreover, Tonga has entered into a series of agreements with a start-up company,
Rimsat, that provides Rimsat access to the orbital locations claimed by Tonga.
Rimsat, in turn, has arranged to acquire various Russian satellites to place in
such locations. PanAmSat believes Rimsat placed two Russian-built satellites
over the Pacific Ocean at 134(degrees) E.L. and 130(degrees) E.L., neither of
which conflicts with orbital locations reserved for PanAmSat. Tonga and Rimsat,
however, have announced similar arrangements that would place Russian satellites
at 70(degrees) E.L., which could conflict with PAS-4's slot of 68.5(degrees)
E.L., and at 189.25(degrees) W.L., which could conflict with PAS-2 at
191(degrees) W.L. Rimsat reportedly has defaulted on its payments to Tonga and
to the vendor of its Russian satellites, and courts in Indiana and the island of
Nevis, respectively, have appointed a bankruptcy trustee and a receiver to
manage Rimsat's affairs. The Russian company from which Rimsat obtained its
satellites reportedly has taken back control of the satellites. Papua New Guinea
filed with the ITU for a slot at 192.55(degrees) W.L. prior to the time that the
FCC filed on PanAmSat's behalf for PAS-2. PanAmSat believes the Papua New Guinea
registration has expired but Papua New Guinea claims its registration will
remain valid for several years. On June 16, 1993, PanAmSat filed an application
with the FCC to change the orbital location of PAS-2 from 192(degrees) W.L. to
191(degrees) W.L. , in part to gain an additional degree of separation from the
location claimed by Papua New Guinea. Pacific Satellite, Inc. ("Pacstar"), a
company that is owned in part by Papua New Guinea and that claims rights to
Papua New Guinea's orbital location, filed a "Petition to Deny or in the
Alternative to Condition Approval on Showing of No Interference" against
PanAmSat's application. The FCC has denied the Pacstar petition. Pacstar's
appeal to the United States Court of Appeals for the District of Columbia was
dismissed because it was untimely. According to press accounts, Papua New Guinea
and Loral Space and Communications Ltd. ("Loral Space") entered into an
agreement in early 1997 under which Loral Space would build and place three
satellites into orbital locations claimed by Papua New Guinea, including the
192.55(degrees) W.L. orbital location, and Loral Space and Papua New Guinea
would share capacity on the satellites.

In addition, a Russian government satellite operates at 70(degrees) E.L. Up
to one half of the C-band transponders on PAS-4 overlap in frequency with the
Russian satellite. PanAmSat, under the auspices of the U.S. government, has
attempted to coordinate the two satellites with Russian authorities. The Russian
authorities, however, have refused to provide full technical information
regarding the satellite, and claim that PAS-4 interferes with the Russian
satellite. The Russian authorities filed a complaint with the ITU and requested
that the U.S. authorities require PanAmSat to cease the alleged interference.
The U.S. government challenged the Russian authorities' claim of interference
and urged the Russian authorities to provide additional technical information
regarding the satellite, and to proceed with coordination. On November 8, 1996,
the ITU declined to take action on the Russian complaint and referred the matter
to the United States and the Russian administration for further coordination

27
<PAGE>

efforts. PanAmSat believes that PAS-4 and the Russian satellite could be
coordinated successfully with reduced adverse effects on PAS-4 capacity.
However, until coordination is completed successfully, PanAmSat's ability to
provide services in Russia or to Russian customers will be affected adversely,
both technically and politically. It is PanAmSat's belief that Russia has taken
the position that it will not license within Russia the use of PanAmSat's
satellites. If PAS-7 is to be co-located with PAS-4, it is unlikely that PAS-7
will be permitted to operate its C-band transponders for commercial use until
the above described coordination issues with Russia have been resolved
successfully.

In addition, after the registration for PAS-4 had been filed, Intelsat
filed in August 1993 with the ITU Radio Regulations Board for an orbital
location that could conflict with PAS-4's then-intended slot and Intelsat
subsequently announced plans to place a satellite near its end-of-life at that
location. PanAmSat reached an agreement with Intelsat pursuant to which PanAmSat
was able to occupy 68.5(degrees) E.L.; Intelsat can locate its end-of-life
satellite at 72(degrees) E.L. for a limited period and, at the conclusion of
that period, PanAmSat may bring a satellite into service at 72(degrees) E.L.

PanAmSat's FCC application for PAS-5 includes requests to use the so-called
"planned band" frequencies. The U.S. planned band registration request for PAS-6
specifies 45(degrees) W.L., and needs to be modified to specify 43(degrees) W.L.
Although PanAmSat believes the FCC will approve operations at 43(degrees) W.L.
as requested by PanAmSat, there can be no guarantee of such approval or of
successful registration at 43(degrees) W.L. in lieu of 45(degrees) W.L.

The U.S. government has filed with the ITU for nine orbital slots for Ka-
band geostationary satellites, substantially all of which are sought by PanAmSat
and other U.S. applicants as well.

All of the registrations for PanAmSat's satellites are or will be subject
to the ITU coordination process. The filings described above that conflict with
PanAmSat's registered slots may delay the receipt of final registration for PAS-
2's and PAS-4's orbital locations with the ITU Radio Regulations Board.

Employees

At December 31, 1996, PanAmSat had 210 full-time employees. The Engineering
and Operations department consists of 116 employees, all of whom, with the
exception of the senior vice-president of engineering and three marketing
support engineers, are based full-time at PanAmSat's teleports in Ellenwood,
Georgia, Homestead, Florida and Napa, California. The broadcasting, business
communications and new business development departments consist of 49 people.
There are 45 employees involved in providing administrative, accounting,
regulatory and public relations services. PanAmSat believes its relations with
its employees are good.

ITEM 2. PROPERTIES

PanAmSat's executive offices are located in Greenwich, Connecticut.
PanAmSat leases its executive offices pursuant to a lease that will expire on
March 21, 2003. PanAmSat currently operates three teleports in conjunction with
the PAS Global System. PanAmSat operates its primary teleport in Ellenwood,
Georgia and operates regional teleports in Homestead, Florida for PAS-1 and PAS-
3, and in Napa, California for PAS-2. All of such teleports are manned 24 hours
a day. PanAmSat owns its Homestead, Florida teleport.

PanAmSat also leases office space for its sales and marketing offices in
Coral Gables, Florida, Sydney, Australia, London, England and Tokyo, Japan.
PanAmSat's leases for its foreign offices have been entered into upon terms that
PanAmSat deems to be reasonable and customary.

ITEM 3. LEGAL PROCEEDINGS

In July 1989, PanAmSat and its then chairman, Rene Anselmo, filed an
antitrust lawsuit against Comsat, the U.S. signatory to Intelsat, in the United
States District Court for the Southern District of New York. In September 1990,
the District Court dismissed the complaint, primarily on the ground that Comsat
is immune from suit for actions taken "in its role as the U.S. representative to
Intelsat." PanAmSat filed an appeal of the dismissal

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<PAGE>

with the United States Court of Appeals for the Second Circuit. In September
1991, the Second Circuit reversed the dismissal and remanded the case to the
District Court to permit the filing of an amended complaint alleging conduct not
shielded by immunity. The amended complaint which seeks substantial damages and
injunctive relief was filed on November 15, 1991. Comsat moved to dismiss the
amended complaint, but on March 30, 1993, the court denied Comsat's motion and
allowed PanAmSat to proceed on all points it had raised in its amended
complaint. The amended complaint alleges anticompetitive conduct by Comsat, as
well as actions by Comsat in concert with others, to prevent or delay PanAmSat's
entry into various markets. On December 16, 1994, Comsat filed a summary
judgment motion and on March 1, 1995 PanAmSat filed papers in opposition to
Comsat's motion. On September 4, 1996 the District Court granted Comsat's motion
for summary judgment against PanAmSat. PanAmSat filed a notice of appeal on
October 2, 1996. Briefs have been submitted to the court, but a date for a
hearing has not yet been set.

On or about October 25, 1996, an action was commenced by Comsat against
PanAmSat, News Corp. and Televisa, in the United States District Court for the
Central District of California. The complaint alleges that News Corp. wrongfully
terminated an agreement with Comsat for the lease of transponders on an Intelsat
satellite over the term of a five year lease, breached certain alleged promises
related to such agreement, and breached its alleged obligations under a tariff
filed by Comsat with the FCC. As to PanAmSat, the complaint alleges that
PanAmSat, alone and in conspiracy with Televisa, intentionally interfered with
the alleged agreement and with Comsat's economic relationship with News Corp.
Comsat had previously filed a similar action in the United States District Court
for the District of Maryland. By order dated October 10, 1996 the Maryland
District Court dismissed without prejudice the complaint in that action on the
ground that the court lacked personal jurisdiction over all of the defendants.
The complaint in the present action seeks actual and consequential damages, and
punitive or exemplary damages, in an amount to be determined at trial but which
Comsat alleges exceed $50,000. On December 11, 1996, PanAmSat, News Corp. and
Televisa filed motions to dismiss the action on various grounds, including that
the FCC has primary jurisdiction over the dispute, that federal law preempts the
claims asserted against PanAmSat and Televisa, that the claims asserted against
Televisa and PanAmSat are not recognized by federal law, that the claims against
PanAmSat and Televisa fail to state a cause of action and that because the
claims against PanAmSat and Televisa depend upon the existence of enforceable
rights under the tariff Comsat filed with the FCC, the claims fail if the FCC
determines that Comsat has no such rights. In this regard, in April 1996, News
Corp. filed a complaint with the FCC challenging Comsat's tariff. Thereafter
Comsat filed a motion with the FCC to hold that proceeding in abeyance pending
resolution of Comsat's civil suit. By letter ruling dated December 6, 1996, the
FCC denied Comsat's motion and established a schedule to resolve the issues
raised by News Corp.'s complaint. On January 27, 1997, the parties appeared
before Judge Wardlaw for a hearing on the motion to dismiss. From the bench,
the Judge denied the motions to dismiss and the parties have proceeded to
discovery. Although the Company believes this action is without merit and
intends to vigorously contest this matter, it is unable to predict the final
outcome of this matter at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

During the fourth quarter of fiscal 1996, no matters were submitted to a
vote of stockholders through the solicitation of proxies or otherwise.

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PART II

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

The Common Stock commenced trading on the Nasdaq National Market on
September 21, 1995 under the symbol "SPOT." The Common Stock was listed in
connection with the Company's IPO.

The following table sets forth, for the calendar periods indicated, the
high and low closing sales price per share for the Common Stock, as reported by
the Nasdaq National Market and the Dow Jones News Retrieval Service.

<TABLE>
<CAPTION>
HIGH LOW
-------- ------
<S> <C> <C>
1995
Fourth Quarter (from September 21, 1995)........... 22 1/16 14
1996
First Quarter...................................... 33 7/8 20 1/2
Second Quarter..................................... 34 19/64 27
Third Quarter...................................... 30 21 3/4
Fourth Quarter..................................... 30 1/8 27 1/2
</TABLE>

At March 24, 1997, there were approximately 62 holders of record of the
Common Stock.

The Company has never declared or paid cash dividends on the Common Stock.
The Company presently intends to retain future earnings to support the growth of
its business and, therefore, does not anticipate paying cash dividends in the
near future. The payment of any future dividends on the Common Stock will be
determined by the Company's Board of Directors in light of conditions then
existing, including the Company's earnings, financial condition and capital
requirements, restrictions in financing agreements, business conditions, the
dividend payment requirements of the Preferred Stock and other factors. In
addition, the 1993 Indentures and the Certificate of Designation restrict, and
the Exchange Indenture would restrict, the ability of the Company to pay cash
dividends on the Common Stock, and the payment of dividends requires the consent
of holders of a majority of the outstanding shares of each of the Class A Common
Stock and the Class B Common Stock, voting as separate classes.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for and as of each year in the five-
year period ended December 31, 1996 have been derived from the financial
statements of the Company and predecessor entities, audited by Arthur Andersen
LLP, independent public accountants. This selected financial data should be
read in conjunction with the financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See Item 7.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................... $ 246,943 $ 116,155 $ 63,744 $ 50,798 $ 40,328
---------- ---------- ---------- -------- --------
Operating expenses
Direct expenses......................... 10,505 5,729 4,254 3,424 2,175
Sales and marketing................. 14,012 9,543 7,179 4,461 2,599
Engineering and technical........... 17,337 10,659 5,811 3,841 3,918
General and administrative.......... 25,349 15,688 9,768 7,066 5,554
Depreciation and amortization....... 61,334 33,412 16,331 8,231 6,990
Other expenses(1)................... 4,758 -- -- 737 --
Compensatory programs(2)............ 4,874 8,341 -- -- --

(continued on following page)
</TABLE>

30
<PAGE>
(contuinued from previous page)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating expenses........ 138,169 83,372 43,343 27,760 21,236
---------- ---------- ---------- -------- --------
Income from operations.............. 108,774 32,783 20,401 23,038 19,092
Interest and other expense (income), net. 622(4) (1,592)(4) 2,403(43)) 6,103(4) 1,984(
---------- ---------- ---------- -------- --------
Income before taxes................. 108,152 34,375 17,998 16,935 17,108
Income taxes(5).......................... 46,432 16,829 -- -- --
---------- ---------- ---------- -------- --------
Net income.......................... 61,720 17,546 17,998 16,935 17,108
Preferred stock dividend requirement..... 41,422 25,976 -- -- --
---------- ---------- ---------- -------- --------
Net income (loss) to common shares.. $ 20,298 $ (8,430) $ 17,998 $ 16,935 $ 17,108
========== ========== ========== ======== ========
CERTAIN PRO FORMA DATA(6)

OTHER FINANCIAL DATA:
EBITDA(7)................................ $ 170,108(8) $ 66,195(8) $ 36,732 $ 31,269 $ 25,306
EBITDA margin............................ 69%(8) 57%(8) 58% 62% 63%
Capital expenditures for satellite
systems under development............... $ 280,858 $ 333,052 $ 300,217 $260,134 $ 22,555
Payments due from customers under
long-term contracts(9).................. $2,435,608 $1,928,200 $1,270,000 $764,500 $239,700
Customers under long-term contracts at
end of period(9)........................ 199 177 121 108 89

BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)................ $ (8,758) $ (889) $ 21,992 $ 51,179 $ 27,039
Total assets............................. 1,615,363 1,438,820 820,255 731,660 136,594
Long-term debt (less current
portion)(10)............................ 626,010 575,284 510,202 455,727 5,474
Long-term debt (less current portion)
plus Preferred Stock (10)............... 955,080 862,932 510,202 455,727 5,474
Partner's interest--conditionally
redeemable(11).......................... -- -- 194,591 193,936 50,000
Partners'/stockholders' equity(12)....... 497,368 476,862 80,935 59,847 49,098

(footnotes on the following page)
</TABLE>

31
<PAGE>

____________
(1) Other expenses relate to costs incurred in connection with the
Reorganization Agreement.

(2) In 1995, this reflects expenses related to the assumption by PanAmSat of
phantom stock plans of a predecessor company and the grant of a limited
partnership interest in the Partnership to the Executive Vice President of
PanAmSat in connection with the corporate reorganization of PanAmSat. In
1996, this represents a cash bonus paid to employees who would otherwise
have qualified for the grant of stock options under PanAmSat's Long-Term
Stock Investment Plan. See Note 11 to Notes to the PanAmSat Financial
Statements.

(3) In 1992, this includes costs (net of insurance reimbursement) arising from
damage caused by Hurricane Andrew to PanAmSat's teleport in Homestead,
Florida.

(4) Net of capitalized interest of $9.0 million, $41.0 million, $37.8 million
and $39.5 million for the years ended December 31, 1993, 1994, 1995 and
1996, respectively.

(5) As a partnership, the Partnership was not subject to federal or state
income taxes. Accordingly, no income taxes were deducted from net income on
the Partnership's financial statements. However, the Partnership was
obligated under its Partnership Agreement to make certain tax distributions
to its partners. On March 2, 1995, the Partnership was converted to
corporate form and, accordingly, is now subject to income taxes.

(6) The following Certain Pro Forma Data gives effect to the Conversion and the
consummation of the IPO as if each had occurred at January 1, 1995. See
"BUSINESS--Conversion and Initial Public Offering." The pro forma
adjustment to income taxes for the periods indicated are based on a pro
forma statutory tax rate of 40.3%.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA (UNAUDITED):
Pro forma adjustment to income tax provision......... $ (1,207)
Pro forma net income................................. 18,753
Pro forma loss to available common stockholders...... (7,223)
Pro forma loss per common share...................... $ (.07)
Pro forma weighted average common shares
outstanding........................................ 100,000,000
</TABLE>

Pro forma loss per share included in the PanAmSat Financial Statements
appearing elsewhere herein of $(.08) per share for the year ended December
31, 1995 are based on 89,678,638 weighted average shares outstanding as of
December 31, 1995 reflecting the IPO which occurred on September 21, 1995.

(7) Represents earnings before net interest expense, income taxes, depreciation
and amortization. EBITDA is commonly used in the communications industry to
analyze companies on the basis of operating performance, leverage and
liquidity. EBITDA should not be considered as a measure of profitability or
liquidity as determined in accordance with generally accepted accounting
principles in the statements of operations and cash flows.

(8) Includes expenses related to the assumption by PanAmSat of phantom stock
plans of a predecessor company and the grant of a limited partnership
interest in the Partnership to the Executive Vice President of PanAmSat in
connection with the corporate reorganization of PanAmSat of $8.3 million
for the year ended December 31, 1995 and expenses related to the
Reorganization Agreement and a corporate compensation plan totaling $9.6
million for the year ended December 31, 1996. EBITDA and EBITDA margin
excluding such expenses were $74.5 million and 64% for the year ended
December 31, 1995 and $179.7 million and 73% for the year ended December
31, 1996. See Notes 11 and 13 to Notes to the PanAmSat Financial
Statements.

(9) Represents future payments due from customers under long-term contracts at
the end of the periods indicated, excluding arrangements for satellite
capacity for the DTH services in Latin America. At December 31, 1996,
approximately $22.6 million of PAS-1 customer payments, $92.4 million of
PAS-2 customer payments, $35.6 million of PAS-3 customer payments and $79.2
million of PAS-4 customer payments were under contracts which are
terminable by the customer under certain circumstances, including after a
minimum service period. Certain contracts may also be terminated if certain
technical performance specifications contained in the agreements, including
useful life, are not achieved. Future cash payments expected from customers
may be reduced for outage or transponder failure and may be further reduced
for "lowest price" provisions for like transponder capacity given to
similarly situated customers. The terms of PanAmSat's long-term contracts
range from one year to the life of the satellite. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Overview."

(10) Excludes, as to each of PAS-5 and PAS-6, a portion of the respective
purchase prices which will become payable after such satellite is delivered
and which amount may be paid immediately in cash or deferred over periods
of up to 15 years with interest rates ranging from 8.0% to 10.0% per annum.
At December 31, 1996, these amounts aggregated approximately $34.5 million.
A portion of the respective purchase prices of PAS-7 and PAS-8 may also be
deferrable. PanAmSat presently intends to defer such payments at the time
they become payable to the extent such deferral is permitted under the
terms of its then-outstanding indebtedness and preferred stock. PanAmSat
anticipates that if, at the time such payments become payable, PanAmSat is
prohibited from incurring such indebtedness under the terms of its
outstanding indebtedness or preferred stock, it will either seek the
consent of the holders thereof to incur such indebtedness or will obtain
funds from sources permitted under the terms thereof to make such payments.
There can be no assurance that such consent will be obtained or that funds
will be available to PanAmSat from sources permitted under the terms of its
outstanding indebtedness or preferred stock. See Notes 6, 7 and 8 to Notes
to the PanAmSat Financial Statements appearing elsewhere herein and
"BUSINESS--The Satellites."

(11) Under the Partnership Agreement of the Partnership, if the launches of PAS-
2, PAS-3, and PAS-4 were not all successfully completed by December 31,
2001, USHI would have had the right to redeem its $200.0 million investment
in PanAmSat in 2004 for $200.0 million, less certain distributions paid to
USHI, plus a yield thereon of 6.0% per annum. In the Conversion, USHI's
redemption rights with respect to its interest in the Partnership were
extinguished.

(12) Net of distributions of $16.4 million and $6.2 million for the years ended
December 31, 1992 and 1993, respectively, and a contribution of $.7 million
for the year ended December 31, 1994. There were no distributions or
contributions in 1995 or 1996.

32
<PAGE>

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

The following discussion and analysis of the financial condition and
results of operations of PanAmSat should be read in conjunction with the
financial data and the PanAmSat Financial Statements appearing elsewhere in this
Annual Report.

OVERVIEW

PanAmSat's first satellite, PAS-1, was launched in June 1988 for service
over the Atlantic Ocean Region and is a leading satellite for television and
cable programming distribution in Latin America. PanAmSat's second satellite,
PAS-2, was launched in July 1994 for service over the Pacific Ocean Region and
is a leading satellite for programming distribution in the Asia-Pacific region.
PanAmSat's PAS-4 satellite was launched in August 1995 for service over the
Indian Ocean Region and is a leading satellite for programming distribution in
south Asia and Africa. PanAmSat's PAS-3 satellite was launched in January 1996
for service over the Atlantic Ocean Region. PAS-3 and PAS-1 are the leading
satellites for television and cable programming distribution in Latin America.
PanAmSat expects to launch two additional satellites to serve the Atlantic Ocean
Region: PAS-6 in April 1997; and PAS-5 in July 1997. PanAmSat intends to launch
PAS-7 and PAS-8 in early 1998. PAS-7 and PAS-8 are expected to serve the Indian
Ocean Region and the Pacific Ocean Region, respectively. PanAmSat expects that
in the future it will launch additional satellites to meet then-anticipated
customer demand. There can be no assurance, however, that the schedule for
PanAmSat's future satellite launches will be met.

At December 31, 1996, PanAmSat's long-term contracts provided for future
payments of approximately $2.4 billion, consisting of $187 million for PAS-1,
$516 million for PAS-2, $583 million for PAS-3 and $1.1 billion for PAS-4,
excluding arrangements for satellite capacity for the DTH service in Latin
America. At December 31, 1996, approximately $22.6 million of PAS-1 customer
payments, $92.4 million of PAS-2 customer payments, $35.6 million of PAS-3
customer payments and $79.2 million of PAS-4 customer payments were under
contracts which may be terminable by the customer if certain technical
performance specifications contained in the agreements, including useful life,
are not achieved or, at the customer's option, after a minimum service period.
The estimated useful life of each of PAS-1, PAS-2, PAS-3 and PAS-4 is 13, 14, 15
and 15 years from launch, respectively. PanAmSat signed the 1996 Letter
Agreement to provide services to the Latin America JVs on 48 transponders on the
PAS-5 and PAS-6 satellites at a minimum value of approximately $1.3 billion,
depending upon actual useful life, of the satellites in question, their
predicted performance and their in-service dates. For most of the transponders,
this value reflects service fees that are equal to PanAmSat's best estimate of
the cost to design, construct, launch, insure and operate the satellites and for
the balance of the transponders, the value reflects service fees that are based
on a fixed price. On the cost-based transponders, PanAmSat also could receive
revenue sharing from the Latin America JVs and the Spain Joint Venture. See
"BUSINESS--DTH Strategy." Future cash payments expected from customers may be
reduced for outage or transport failure and may be further reduced for "lowest
price" provisions for like transponder capacity given to similarly situated
customers. The terms of PanAmSat's long-term contracts range from one year to
the life of the satellite.

During the construction period of each of its new satellites, and
thereafter, PanAmSat may incur increased operating expenses, including
expenditures for sales and marketing in excess of the levels previously
incurred, increased engineering and technical expenses, as well as increased
general and administrative expenses, which increased expenses may not be offset
by additional revenues until the new satellites are successfully launched and
commence service. As a result, PanAmSat's operating income and EBITDA margins
were lower in 1994 than in 1993. However, in 1995 and 1996, EBITDA margin
increased due to a significant growth in revenues, and operating income margin
increased in 1996, and would have increased in 1995 except for the $8.3 million
corporate reorganization and compensation expense related to the assumption by
PanAmSat of phantom stock plans of a predecessor company and the grant of a
limited partnership interest in the Partnership to the Executive Vice President
of PanAmSat. PanAmSat's income from operations and EBITDA in 1995 were also
adversely affected by the corporate reorganization compensation expense. Also,
commencing at the in-service date of any successfully-launched satellite, all
satellite construction, launch, launch insurance, capitalized interest and
development costs for such satellite will be depreciated on a straight-line
basis over the estimated useful life of the

33
<PAGE>

satellite. Further, after the in-service date of any successfully-launched
satellite (or upon a launch failure), PanAmSat will be required to expense, and
no longer will be able to capitalize, interest allocable to such satellite's
construction, launch and development costs. Interest capitalized in future
periods is dependent on the level of satellites under construction, which is
expected to vary.

PanAmSat is not a party to any material currency or interest rate hedging
transactions, and substantially all of PanAmSat's long-term customer contracts
and vendor obligations are denominated in U.S. dollars.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain revenue and expense items in PanAmSat's
Statements of Operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
- -----------------------------
Total revenues.................. 100% 100% 100%
Operating expenses
Direct expenses................ 4 5 7
Sales and marketing............ 6 8 11
Engineering and technical...... 7 9 9
General and administrative..... 10 14 15
Depreciation and amortization.. 25 29 26
Compensatory programs.......... 2 7 --
Other expenses................. 2 -- --
--- --- ---
Total operating expenses...... 56 72 68
--- --- ---
Income from operations.......... 44% 28% 32%
=== === ===
Other Operating Data:
EBITDA Margin(1)................ 69%(2) 57%(2) 58%
=== === ===
</TABLE>

- --------------------------
(1) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity. EBITDA should not be considered as a measure of
profitability or liquidity as determined in accordance with generally
accepted accounting principles in the statements of operations and cash
flows.

(2) Includes expenses of $8.3 million in 1995 related to the assumption by
PanAmSat of phantom stock plans of a predecessor company and the grant of a
limited partnership interest in the Partnership to an Executive Vice
President of PanAmSat in connection with the corporate reorganization of
PanAmSat and, in 1996, expenses of $9.6 million related to the
Reorganization Agreement and a corporate compensation plan. EBITDA Margin
excluding such expenses was 64% for the year ended December 31, 1995 and 73%
for the year ended December 31, 1996.

PanAmSat provides satellite services primarily to the video distribution
and business communications markets. PanAmSat also provides services to the
telephony market. PanAmSat's video distribution services include the provision
of satellite capacity and services for (i) television programming distribution,
(ii) "backhaul" operations (i.e., the transmission of video feeds from one
location to another) and (iii) ad hoc services such as the transmission of
special events and live news reports from the scene of an event. PanAmSat's
business communications services include (a) the provision of satellite capacity
to communications carriers that provide private business networks for data,
voice and corporate video communications and (b) the provision of such networks
and related services by PanAmSat directly to end-users. PanAmSat's telephony
services provide satellite capacity for use in domestic (non-U.S.) and
international public telephone networks. PanAmSat's total revenues in each of
these markets, and the revenues in these markets as a percentage of total
revenues, for the periods indicated below were:

34
<PAGE>

YEAR ENDED DECEMBER 31,
---------------------------------------------
STATEMENT OF OPERATIONS DATA 1996 1995 1994
- ---------------------------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Video Distribution............. $204,810 83% $ 83,876 72% $38,905 61%
Business Communications........ 39,905 16 30,135 26 22,369 35
Telephony...................... 2,228 1 2,144 2 2,470 4
-------- --- -------- --- ------- ---
Total revenues................. $246,943 100% $116,155 100% $63,744 100%
======== === ======== === ======= ===
</TABLE>

1996 COMPARED TO 1995

Revenues. Total revenues for the year ended December 31, 1996 were $246.9
million, an increase of $130.7 million, or 112%, over 1995. The increase in
total revenues was due primarily to the growth in video distribution services.

Video distribution services revenue was $204.8 million in the year ended
December 31, 1996, an increase of $120.9 million or 144% over 1995. The growth
in video distribution services revenue during 1996 was due primarily to the
commencement of video services on the PAS-3 satellite, and the continuing
increase in space segment leasing for video services on the PAS-2 and PAS-4
satellites.

Business communications services revenue was $39.9 million in 1996, an
increase of $9.8 million, or 32% over 1995. The increase was due primarily to
commencement of service for several new data network and carrier service
contracts which originated during the past year.

Telephony services revenue was $2.2 million in 1996, an increase of $0.1
million or 5% from 1995.

Direct Expenses. Direct expenses were $10.5 million in the year ended
December 31, 1996, an increase of $4.8 million, as compared to $5.7 million in
1995. Direct expenses were 4% and 5% of total revenues in the years ended
December 31, 1996 and 1995, respectively.

Sales and Marketing Expenses. Sales and marketing expenses were $14.0
million in the year ended December 31, 1996, an increase of $4.5 million, as
compared to $9.5 million in 1995. Sales and marketing expenses were 6% and 8% of
total revenues in the years ended December 31, 1996 and 1995, respectively. The
dollar increase in sales and marketing expenses during 1996 was primarily
attributable to PanAmSat's efforts in marketing capacity on the PAS Global
System and the pursuit of DTH opportunities worldwide.

Engineering and Technical Expenses. Engineering and technical expenses
were $17.3 million in the year ended December 31, 1996, an increase of $6.6
million, as compared to $10.7 million in 1995. Engineering and technical
expenses were 7% and 9% of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in engineering and technical
expenses during 1996 was due primarily to TT&C costs associated with PAS-3 and
PAS-4, as well as costs associated with contracts to provide carrier monitoring
services.

General and Administrative Expenses. General and administrative expenses
were $25.3 million in the year ended December 31, 1996, an increase of $9.6
million, as compared to $15.7 million in 1995. General and administrative
expenses were 10% of total revenues in 1996 as compared to 14% of total revenues
in 1995. The dollar increase in general and administrative expenses during 1996
was due primarily to increased costs of $6.4 million associated with in-orbit
insurance on PAS-3 and PAS-4. The remaining increase of $3.2 million primarily
results from additional personnel and other administrative costs associated with
PanAmSat's expansion.

Depreciation and Amortization. Depreciation and amortization was $61.3
million in the year ended December 31, 1996, an increase of $27.9 million, or
84%, as compared to $33.4 million for the year ended 1995. Depreciation and
amortization was 25% of total revenues in 1996 as compared to 29% of total
revenues in 1995. The dollar increase in 1996 was due primarily to depreciation
expense associated with PAS-3 and PAS-4.

Compensatory Programs. Compensatory program expense was $4.9 million in
the year ended December 31, 1996 compared to $8.3 million for the year ended
December 31, 1995, a decrease of $3.4 million.

35
<PAGE>

Compensatory program expense during 1996 represents a cash bonus paid to
employees who would otherwise have qualified for the grant of stock options
under the Company's Long-Term Stock Investment Plan. Compensatory program
expense during 1995 is related to the assumption by the Company of phantom stock
plans of a predecessor company and the grant of a limited partnership interest
in the Partnership to the Executive Vice President of the Company.

Reorganization Costs. Reorganization costs of $4.8 million for the year
ended December 31, 1996 consist of legal, accounting and investment banking fees
associated with the Agreement and Plan of Reorganization with Hughes announced
in September 1996.

Income From Operations. Income from operations was $108.8 million for the
year ended December 31, 1996, an increase of $76.0 million, as compared to $32.8
million in 1995. Income from operations was 44% and 28% of total revenues in the
years ended December 31, 1996 and 1995, respectively. The dollar increase in
income from operations during 1996 was due primarily to the increase in video
distribution services revenues.

Interest. Interest income was $24.3 million for the year ended December
31, 1996 compared to $20.6 million in the prior year. The dollar increase in
interest income during 1996 is a result of interest earned on proceeds from the
offerings of the Preferred Stock and the Common Stock in 1995 that had not been
applied to satellite systems under development. Interest expense, net of
capitalized interest, increased from $19.0 million in the year ended December
31, 1995 to $24.9 million during the year ended December 31, 1996. This increase
in interest expense is due to interest expense incurred on satellite incentive
obligations and additional accretion of the Discount Notes.

Income Before Income Taxes. Income before income taxes was $108.2 million
for the year ended December 31, 1996, an increase of $73.8 million, as compared
to $34.4 million in 1995. Income before income taxes was 44% and 30% of total
revenues in the years ended December 31, 1996 and 1995, respectively. The dollar
increase in income before income taxes during 1996 was due primarily to the
increase in video distribution services revenues.

Income Taxes. PanAmSat had an income tax provision of $46.4 million for
the year ended December 31, 1996 compared to $16.8 million for the year ended
December 31, 1995. The increase in income taxes during 1996 was due to the
increase in income before income taxes.

Net Income. Net income was $61.7 million for the year ended December 31,
1996, an increase of $44.2 million, as compared to $17.5 million in 1995. Net
income was 25% and 15% of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in net income during 1996 was due
primarily to the increase in video distribution services revenues.

Preferred Stock Dividend. PanAmSat had preferred stock dividends of $41.4
million for the year ended December 31, 1996, an increase of $15.4 million, as
compared to $26.0 million in 1995. The preferred stock dividends are a result of
the issuance of the Preferred Stock on April 21, 1995.

Net Income (Loss) To Common Shares. Net income (loss) to common shares
was $20.3 million for the year ended December 31, 1996, an increase of $28.7
million, as compared to ($8.4) million in 1995. Net income (loss) to common
shares was 8% and (7%) of total revenues in the years ended December 31, 1996
and 1995, respectively. The dollar increase in net income (loss) to common
shares during 1996 was due primarily to the increase in video distribution
services revenues.

EBITDA. EBITDA was $170.1 million for the year ended December 31, 1996,
an increase of $103.9 million, or 157%, as compared to $66.2 million in 1995.
EBITDA was 69% of total revenues in 1996 as compared to 57% of total revenues in
1995. The dollar increase in EBITDA during 1996 was due primarily to the
increase in video distribution services revenues.

36
<PAGE>

1995 COMPARED TO 1994

Revenues. Total revenues for the year ended December 31, 1995 were $116.2
million, an increase of $52.5 million, or 82%, over 1994. The increase in total
revenues was due primarily to the growth in video distribution services.

Video distribution services revenue was $83.9 million in the year ended
December 31, 1995, an increase of $45.0 million, or 116%, over 1994. The growth
in video distribution services revenue during 1995 was due primarily to revenues
from video services on PAS-2 and the commencement of revenues from video
services on PAS-4.

Business communications services revenue was $30.1 million in 1995, an
increase of $7.7 million, or 34%, over 1994. The increase was due primarily to
commencement of service for several new IDS network and carrier service data
contracts which originated during the past year.

Telephony services revenue was $2.1 million in 1995, a decrease of $0.4
million, or 16%, from 1994.

Direct Expenses. Direct expenses were $5.7 million and $4.3 million in
the years ended December 31, 1995 and 1994, respectively. Direct expenses were
5% and 7% of total revenues in 1995 and 1994, respectively.

Sales and Marketing Expenses. Sales and marketing expenses were $9.5
million in the year ended December 31, 1995, an increase of $2.3 million, as
compared to $7.2 million in 1994. Sales and marketing expenses were 8% and 11%
of total revenues in the years ended December 31, 1995 and 1994, respectively.
The dollar increase in sales and marketing expenses during 1995 was primarily
attributable to PanAmSat's efforts in marketing capacity on its new satellites.

Engineering and Technical Expenses. Engineering and technical expenses
were $10.7 million in the year ended December 31, 1995, an increase of $4.9
million, as compared to $5.8 million in 1994. Engineering and technical expenses
were 9% of total revenues for both 1995 and 1994. The dollar increase in
engineering and technical expenses during 1995 was due primarily to increased
personnel costs associated with its new teleport facilities and TT&C costs
associated with PAS-2 and PAS-4.

General and Administrative Expenses. General and administrative expenses
were $15.7 million in the year ended December 31, 1995, an increase of $5.9
million, as compared to $9.8 million in 1994. General and administrative
expenses were 14% of total revenues in 1995 as compared to 15% of total revenues
in 1994. The dollar increase in general and administrative expenses during 1995
was due primarily to increased costs of $4.6 million associated with in-orbit
insurance on PAS-2 and PAS-4. The remaining increase of $1.3 million primarily
results from additional personnel and other administrative costs associated with
PanAmSat's expansion.

Depreciation and Amortization. Depreciation and amortization was $33.4
million in the year ended December 31, 1995, an increase of $17.1 million, or
105%, as compared to $16.3 million for the year ended 1994. Depreciation and
amortization was 29% of total revenues in 1995 as compared to 26% of total
revenues in 1994. The dollar increase in 1995 was due primarily to depreciation
expense associated with PAS-2 and PAS-4, the latter being placed in service
during 1995.

Compensatory Programs. Compensation expense related to corporate
reorganization of $8.3 million in 1995 related to the assumption by PanAmSat of
the phantom stock plans of a predecessor company and the grant of a limited
partnership interest in the Partnership to the Executive Vice President of
PanAmSat.

Income From Operations. Income from operations was $32.8 million for the
year ended December 31, 1995, an increase of $12.4 million, as compared to $20.4
million in 1994. Income from operations was 28% and 32% of total revenues in the
years ended December 31, 1995 and 1994, respectively. The dollar increase in
income from operations during 1995 was due primarily to the increase in video
distribution services revenues.

Interest. Interest income was $20.6 million for the year ended December
31, 1995 compared to $7.2 million in the prior year. The dollar increase in
interest income during 1995 is a result of interest earned on

37
<PAGE>

proceeds from the offerings of the Preferred Stock and the Common Stock in 1995
that had not been applied to satellite systems under development. Interest
expense, net of capitalized interest, increased from $9.6 million in the year
ended December 31, 1994 to $19.0 million during the year ended December 31,
1995. This increase in interest expense is due to interest expense incurred on
satellite incentive obligations and additional accretion of the Discount Notes,
coupled with decreased amounts of interest eligible for capitalization on
construction in progress in 1995.

Income Before Income Taxes. Income before income taxes was $34.4 million
for the year ended December 31, 1995, an increase of $16.4 million, as compared
to $18.0 million in 1994. Income before income taxes was 30% and 28% of total
revenues in the years ended December 31, 1995 and 1994, respectively. The dollar
increase in income before income taxes during 1995 was due primarily to the
increase in video distribution services revenues.

Income Taxes. PanAmSat had an income tax provision of $16.8 million for
the year ended December 31, 1995 and did not have any income tax provision for
the prior year. The 1995 provision is the result of the Conversion of PanAmSat
from a partnership to a corporation on March 2, 1995.

Net Income. Net income was $17.5 million for the year ended December 31,
1995, a decrease of $5 million, as compared to $18.0 million in 1994. Net income
was 15% and 28% of total revenues in the years ended December 31, 1995 and 1994,
respectively.

Preferred Stock Dividend. PanAmSat had preferred stock dividends of $26.0
million for the year ended December 31, 1995 and did not have any preferred
stock dividends for the prior year. The preferred stock dividends in 1995 are a
result of the issuance of the Preferred Stock on April 21, 1995.

Net Income (Loss) To Common Shares. Net income (loss) to common shares
was $(8.4) million for the year ended December 31, 1995, a decrease of $26.4
million, as compared to $18.0 million in 1994. Net income (loss) to common
shares was (7%) and 28% of total revenues in the years ended December 31, 1995
and 1994, respectively. The dollar decrease in net income (loss) to common
shares during 1995 was due primarily to the Preferred Stock dividend
requirement.

Pro Forma Net Income. Pro forma net income was $18.8 million for the year
ended December 31, 1995, an increase of $8.0 million, as compared to $10.8
million in 1994. Pro forma net income was 16% and 17% of total revenues in the
years ended December 31, 1995 and 1994, respectively.

Pro Forma Net Income (Loss) To Common Shares. Pro forma net income (loss)
to common shares was $(7.2) million for the year ended December 31, 1995, a
decrease of $18.0 million, as compared to $10.8 million in 1994. Net income
(loss) to common shares was (6%) and 17% of total revenues in the years ended
December 31, 1995 and 1994, respectively. The dollar decrease in pro forma net
income (loss) to common shares during 1995 was due primarily to the Preferred
Stock dividend requirement.

EBITDA. EBITDA, excluding the $8.3 million corporate reorganization
compensation charge, was $74.5 million for the year ended December 31, 1995, an
increase of $37.8 million, or 103%, as compared to $36.7 million in 1994.
EBITDA, excluding the $8.3 million corporate reorganization compensation charge,
was 64% of total revenues in 1995 as compared to 58% of total revenues in 1994.
The dollar increase in EBITDA was due primarily to the increase in video
distribution services revenues.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, PanAmSat and its predecessors have financed their
operations through a combination of debt and equity financing, vendor financing,
bank financing, equipment leases and cash flow from operations. On August 5,
1993, PanAmSat completed the sale of $175 million aggregate principal amount of
the Senior Secured Notes and $460.2 million aggregate principal amount of the
Discount Notes in a public offering and received net proceeds of approximately
$425.5 million. The original PAS-3 satellite was destroyed during a launch
failure on December 1, 1994. PanAmSat collected in 1995 the insurance proceeds
in the amount of $214.0 million for the original PAS-3 satellite. On April 21,
1995, PanAmSat completed the sale of 275,000 shares of the

38
<PAGE>

Preferred Stock in a public offering and received net proceeds of approximately
$261.8 million. On September 27, 1995, the public offering of 18,920,000 shares
of the Common Stock was completed. Of such shares, 14,324,324 shares of Common
Stock were sold by PanAmSat and 4,595,676 shares of Common Stock were sold by
certain selling stockholders. PanAmSat received net proceeds of approximately
$229.1 million from its sale of shares of Common Stock, but did not receive any
of the proceeds from the sale of shares by the selling stockholders.

The total cost for the construction and launch of PAS-5 and PAS-6,
including launch insurance, certain components for spare satellites, ground
facilities and related development expenses is estimated to be approximately
$473.0 million. PanAmSat expects to fund $296.3 million of such costs with the
net proceeds of the offering of the Preferred Stock and $70.0 million of vendor
financing. The balance of such costs and any additional costs due to cost
overruns, delays or other unanticipated expenses is anticipated to be funded
from future cash flow from operations and cash on hand.

The total cost for the construction and launch of PAS-7 and PAS-8,
including launch insurance, ground facilities and related development expenses
(but excluding capitalized interest expense) is estimated to be approximately
$420.0 million. PanAmSat expects to fund $224.6 million of such costs with the
net proceeds to it from the offering of the Common Stock. The balance of such
costs and any additional costs due to cost overruns, delays or other
unanticipated expenses is expected to be funded from vendor financing and future
cash flow from operations.

PanAmSat believes that the net proceeds to it from the offerings of
Preferred Stock and Common Stock, vendor financing, future cash flow from
operations (assuming PAS-5 and PAS-6 are successfully launched and commence
service on the schedule currently contemplated) and cash on hand will be
sufficient to fund PanAmSat's operations, its remaining costs for the
construction and launch of PAS-5 and PAS-6, its anticipated minimum contractual
commitments for the construction and launch of PAS-7 and PAS-8. Any additional
costs due to cost overruns, delays or other unanticipated expenses are expected
to be funded from additional vendor financing and future cash flow from
operations. There can be no assurance, however, that PanAmSat's assumptions with
respect to the construction and launch costs for PAS-5, PAS-6, PAS-7 or PAS-8
will be correct, that under the terms of PanAmSat's then-outstanding
indebtedness and preferred stock it will be permitted to incur all of the vendor
financing available to it, or that additional vendor financing and PanAmSat's
future cash flow from operations will be sufficient to cover any shortfall in
funding for PAS-5, PAS-6, PAS-7 and PAS-8, or any such additional costs, or to
pursue international opportunities for DTH services. The ability of PanAmSat to
incur any additional debt financing will be subject to the terms of PanAmSat's
outstanding indebtedness and preferred stock. There can be no assurance that
PanAmSat will be successful in obtaining such additional financing in the
amounts or on terms acceptable to PanAmSat. The failure to obtain such financing
could have a material adverse effect on PanAmSat's operations and its ability to
accomplish its business plan.

Cash flows provided by operating activities increased to $177.7 million in
the year ended December 31, 1996, from $95.0 million in the year ended December
31, 1995, an increase from $26.1 million in the year ended December 31, 1994.
The increase in cash flows in 1996 was due primarily to the significant growth
in revenues and noncash charges. The increase in cash flows in 1995 was due
primarily to increases in prepaid service revenue related to service contracts
for PAS-4 and PAS-2 and noncash charges.

Net cash used in investing activities decreased to $186.2 million in the
year ended December 31, 1996, from $594.3 million in the year ended December 31,
1995, an increase from $63.1 million in the year ended December 31, 1994. The
1996 decrease primarily reflects $280.9 million of expenditures for satellite
systems under development partially funded by $117.2 million of proceeds from
maturity of marketable securities. This compares to $333.1 million in
expenditures for satellite systems under development and $488.8 million of
purchases of marketable securities during 1995 partially funded with $191.1
million of insurance proceeds collected on the launch failure of the original
PAS-3 satellite. The 1995 increase primarily reflects the insurance proceeds
received in the amount of $191.1 million (net of payments made directly to the
satellite vendor) and the net proceeds of the offering of Preferred Stock and
Common Stock used to fund $333.1 million in expenditures for the new satellite
system under development and $488.8 million in expenditures used to purchase
marketable securities. This compares to $300.2 million in expenditures for the
satellite system under development during 1994 partially funded with $247.8
million from maturity of marketable securities. Expenditures on other property
and equipment,

39
<PAGE>

primarily at PanAmSat's teleports in Homestead, Florida, Ellenwood, Georgia and
Napa, California were $22.3 million, $13.5 million and $10.5 million in 1996,
1995, and 1994, respectively.

Net cash used in financing activities decreased to $3.6 million in the year
ended December 31, 1996, from $490.1 million provided by financing activities in
the year ended December 31, 1995, an increase from $48.5 million provided by
financing activities in the year ended December 31, 1994. The 1996 decrease
reflects $3.7 million in repayments of long-term debt for the year ended
December 31, 1996 compared to $2.1 million of repayments of long-term debt
during 1995 funded by $263.4 million of net proceeds collected on the offering
of Preferred Stock and $228.8 million of net proceeds collected on the issuance
of Common Stock. The remaining net proceeds were used to purchase marketable
securities. The 1995 increase was primarily attributable to the issuance of
275,000 shares of Preferred Stock by PanAmSat in April 1995 yielding net
proceeds of $263.4 million (excluding related costs incurred in the prior year)
and the issuance of 14,324,324 shares of Common Stock yielding net proceeds of
$228.8 million.

40
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants......................... 42

Balance Sheets -- December 31, 1996 and 1995..................... 43

Statements of Operations for Each of the Three Years
Ended December 31, 1996........................................ 45

Statements of Stockholders' Equity and Partners' Equity
for Each of the Three Years Ended December 31, 1996............ 46

Statements of Cash Flows for Each of the Three Years
Ended December 31, 1996........................................ 47

Notes to Financial Statements.................................... 48
</TABLE>

41
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
PanAmSat Corporation:

We have audited the accompanying consolidated balance sheets of PanAmSat
Corporation (a Delaware Corporation) and subsidiaries and predecessor entity as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and partners' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PanAmSat
Corporation and subsidiaries and predecessor entity as of December 31, 1996 and
1995 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Stamford, Connecticut,
January 27, 1997

42
<PAGE>

PANAMSAT CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,453,055 $ 13,562,113
Accounts receivable, less allowance
for doubtful accounts of $200,000
and $100,000 respectively............ 10,235,520 4,881,255
Prepaid expenses and other current
assets............................... 8,228,455 5,594,999
-------------- --------------
Total current assets............... 19,917,030 24,038,367
SATELLITES AND OTHER PROPERTY AND
EQUIPMENT, AT COST..................... 864,683,595 609,927,311
Less: Accumulated Depreciation and
Amortization........................... (138,091,220) (79,177,520)
-------------- --------------
726,592,375 530,749,791
MARKETABLE SECURITIES.................... 379,178,538 495,078,866
SATELLITE SYSTEMS UNDER DEVELOPMENT...... 479,748,974 377,383,581
DEBT ISSUANCE COSTS (Net of.............. 9,454,276 11,414,920
amortization)
OTHER ASSETS............................. 472,166 154,287
-------------- --------------
Total assets....................... $1,615,363,359 $1,438,819,812
============== ==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

43
<PAGE>

PANAMSAT CORPORATION

BALANCE SHEETS - (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt...... $ 4,166,778 $ 3,287,250
Accounts payable....................... 2,318,877 834,405
Accrued interest....................... 7,109,375 7,109,375
Accrued liabilities and taxes.......... 6,656,741 7,686,452
Deferred revenue....................... 8,423,704 6,009,836
-------------- --------------
Total current liabilities............ 28,675,475 24,927,318
LONG-TERM DEBT........................... 626,009,539 575,283,661
DEFERRED INCOME TAXES.................... 61,631,004 31,573,000
DEFERRED REVENUE......................... 71,920,802 41,656,778
OTHER LIABILITIES........................ 687,934 867,934
-------------- --------------
Total liabilities.................... 788,924,754 674,308,691
-------------- --------------
COMMITMENTS AND CONTINGENCIES

PREFERRED STOCK, 12-3/4% Mandatorily
Exchangeable Senior Redeemable
Preferred Stock, $0.01 par value,
20,000,000 shares authorized,
331,284 shares issued and
outstanding, 8,838 shares for
accrued dividends...................... 329,070,909 287,648,667
-------------- --------------
STOCKHOLDERS' EQUITY:
Class A Common Stock, $0.01 par
value, 100,000,000 shares
authorized, 40,459,432 shares
issued and outstanding............... 404,594 404,594
Class B Common Stock, $0.01 par
value, 100,000,000 shares
authorized, 40,459,431 shares
issued and outstanding............... 404,594 404,594
Common Stock, $0.01 par value,
400,000,000 shares authorized,
19,089,017 shares issued and
outstanding.......................... 190,891 190,812
Additional paid-in-capital............. 477,505,039 477,297,753
Retained earnings...................... 18,862,578 (1,435,299)
-------------- --------------
Total stockholders' equity........... 497,367,696 476,862,454
-------------- --------------
Total liabilities and
stockholders' equity............... $1,615,363,359 $1,438,819,812
============== ==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

44
<PAGE>

PANAMSAT CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Unaffiliated parties................... $237,833,855 $112,231,953 $58,710,472
Related parties........................ 9,108,731 3,922,824 5,033,434
------------ ------------ -----------
246,942,586 116,154,777 63,743,906
OPERATING EXPENSES:
Direct expenses-service agreements..... 10,504,777 5,729,290 4,254,122
Sales and marketing.................... 14,012,050 9,542,672 7,179,192
Engineering and technical services..... 17,337,180 10,659,106 5,811,516
General and administrative............. 25,349,395 15,687,798 9,767,705
Depreciation and amortization.......... 61,333,743 33,411,878 16,330,674
Compensatory programs.................. 4,873,596 8,341,040 --
Reorganization costs................... 4,758,177 -- --
------------ ------------ -----------
138,168,918 83,371,784 43,343,209
------------ ------------ -----------
INCOME FROM OPERATIONS................... 108,773,668 32,782,993 20,400,697
INTEREST INCOME.......................... (24,275,310) (20,637,256) (7,186,549)
INTEREST EXPENSE......................... 24,897,084 19,044,771 9,589,322
------------ ------------ -----------
INCOME BEFORE INCOME TAXES............... 108,151,894 34,375,478 17,997,924
INCOME TAXES............................. 46,431,775 16,829,000 --
------------ ------------ -----------
NET INCOME............................... 61,720,119 17,546,478 $17,997,924
------------ ------------ ===========
PREFERRED STOCK DIVIDEND............... 41,422,242 25,976,655
------------ ------------
NET INCOME (LOSS) TO COMMON SHARES....... $ 20,297,877 $ (8,430,177)
============ ============
PRO FORMA (UNAUDITED) NET INCOME AND
EARNINGS PER COMMON SHARE:
Historical net income.................. $ 17,546,478 $17,997,924
Pro forma adjustment to income......... (1,207,000) 7,245,000
tax provision........................ ------------ -----------
Pro forma net income................... 18,753,478 10,752,924
------------ -----------
Preferred stock dividend............... 25,976,655 --
------------ -----------
Pro forma net income (loss) to
common shares........................ $ (7,223,177) $10,752,924
============ ===========
Actual and pro forma earnings
(loss) per common shares............. $0.20 $(0.08) $0.13
============ ============ ===========
Actual and pro forma weighted
average number of common
shares outstanding................... 100,331,987 89,678,638 85,675,677
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

45
<PAGE>

PANAMSAT CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' EQUITY

<TABLE>
<CAPTION>
PARTNER'S
INTEREST
LIMITED GENERAL PARTNERS' CONDITIONALLY
PARTNERS PARTNERS EQUITY REDEEMABLE
------------ --------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994........................ $ 59,309,145 $ 537,831 $ 59,846,976 $ 193,936,250
Net Income.................................... 17,817,944 179,980 17,997,924 --
Issuance of common stock...................... -- -- -- --
Contributions, net............................ 660,918 6,676 667,594 654,373
Contribution of limited partner's
interest.................................... 2,422,500 -- 2,422,500 --
------------ --------- ------------ -------------
BALANCE, December 31, 1994...................... 80,210,507 724,487 80,934,994 194,590,623
Net loss for period ending
March 2, 1995............................... (6,924,930) (69,949) (6,994,879) --
Capital contribution of equity
interest granted to an executive............ 3,849,300 -- 3,849,300 --
Contribution of assets and
liabilities to PanAmSat Corporation
and issuance of common stock................ (77,134,877) (654,538) (77,789,415) (194,590,623)
Cancellation of common stock upon
reorganization to PanAmSat
Corporation (Note 2)...................... -- -- -- --
Accretion and preferred dividends
payable in kind........................... -- -- -- --
Reverse stock split and issuance of
common stock.............................. -- -- -- --
Net Income for the period of March 3,
1995 through December 31, 1995............ -- -- -- --
------------ --------- ------------ -------------
BALANCE, December 31, 1995...................... -- -- -- --
Net Income.................................. -- -- -- --
Exercise of employee stock options.......... -- -- -- --
Accretion and preferred dividends
payable in kind........................... -- -- -- --
------------ --------- ------------ -------------
BALANCE, December 31, 1996...................... $ -- $ -- $ -- $ --
============ ========= ============ =============

<CAPTION>
COMMON STOCK
PAR VALUE ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------------ ---------- ------------ ------------
<S>............................................. <C> <C> <C> <C>
BALANCE, January 1, 1994........................ -- $ -- $ -- $ --
Net Income.................................... -- -- -- --
Issuance of common stock...................... 100 1 999 --
Contributions, net............................ -- -- -- --
Contribution of limited partner's
interest.................................... -- -- -- --
------------ ---------- ------------ ------------
BALANCE, December 31, 1994...................... 100 1 999 --
Net loss for period ending
March 2, 1995............................... -- -- -- --
Capital contribution of equity
interest granted to an executive............ -- -- --
Contribution of assets and
liabilities to PanAmSat Corporation
and issuance of common stock................ 99,692,550 996,925 248,487,113 --
Cancellation of common stock upon
reorganization to PanAmSat
Corporation (Note 2)...................... (100) (1) (999) --
Accretion and preferred dividends
payable in kind........................... -- -- -- (25,976,655)
Reverse stock split and issuance of
common stock.............................. 307,450 3,075 228,810,640 --
Net Income for the period of March 3,
1995 through December 31, 1995............ -- -- -- 24,541,336
------------ ---------- ------------ ------------
BALANCE, December 31, 1995...................... 100,000,000 1,000,000 477,297,753 (1,435,299)
Net Income.................................. -- -- -- 61,720,119
Exercise of employee stock options.......... 7,880 79 207,286 --
Accretion and preferred dividends
payable in kind........................... -- -- -- (41,422,242)
------------ ---------- ------------ ------------
BALANCE, December 31, 1996...................... 100,007,880 $1,000,079 $477,505,039 $ 18,862,578
============ ========== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

46
<PAGE>

PANAMSAT CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:

Net income......................... $ 61,720,119 $ 17,546,478 $ 17,997,924
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 61,333,743 33,411,878 16,330,674
Deferred income taxes.......... 30,058,004 8,677,000 --
Accretion of interest on
senior subordinated discount
notes......................... 40,341,610 36,128,588 32,355,546
Accretion of interest on
marketable securities......... (1,347,432) (1,004,072) (484,390)
Interest expense capitalized... (39,469,904) (37,840,680) (41,038,656)
Compensation expense granted
as equity interest............ -- 3,849,300 --
Compensation expense on
exercise of employee stock
options....................... 73,405 -- --
Changes in assets and
liabilities:
Increase in accounts
receivable.................... (5,354,265) (1,946,143) (664,672)
Increase in prepaid expenses
and other current assets...... (2,633,456) (1,838,622) (3,120,439)
(Increase) decrease in tax
distribution receivable....... -- 6,671,967 (6,671,967)
Increase (decrease) in
accounts payable.............. 1,484,472 (837,248) 996,779
Increase (decrease) in
accrued liabilities and taxes. (1,029,711) 5,169,191 (1,208,956)
Increase in deferred revenue... 32,677,892 27,045,197 11,603,136
Decrease in other liabilities.. (180,000) (60,000) (11,000)
------------- ------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES.......... 177,674,477 94,972,834 26,083,979
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and
equipment......................... (22,251,315) (13,476,119) (10,474,642)
Expenditures for satellite
systems under development......... (280,857,781) (333,051,711) (300,217,208)
Purchase of marketable securities.. -- (488,789,459) --
Proceeds from maturity of
marketable securities............. 117,247,760 50,000,000 247,753,638
Proceeds from insurance claim
receivable........................ -- 191,084,380 --
Increase in other assets........... (319,955) (83,217) (120,515)
------------- ------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES.................... (186,181,291) (594,316,126) (63,058,727)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner's conditionally............ -- -- 50,000,000
redeemable capital contribution
Capital contributions, net......... -- -- 1,321,967
Proceeds from preferred stock
offering, net..................... -- 263,377,104 --
Proceeds from issuance of common
stock, net........................ -- 228,813,715 --
Deferred offering costs............ -- -- (1,705,093)
Repayments of long-term debt....... (3,736,204) (2,139,623) (1,082,762)
Proceeds from exercise of
employee stock options............ 133,960 -- --
------------- ------------- -------------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES...... (3,602,244) 490,051,196 48,534,112
------------- ------------- -------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS..... (12,109,058) (9,292,096) 11,559,364
CASH AND EQUIVALENTS, beginning of year.. 13,562,113 22,854,209 11,294,845
------------- ------------- -------------
CASH AND EQUIVALENTS, end of year........ $ 1,453,055 $ 13,562,113 $ 22,854,209
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash received for interest......... $ 22,927,878 $ 19,633,184 $ 10,497,017
============= ============= =============
Cash paid for interest............. $ 24,897,084 $ 20,756,864 $ 18,015,432
============= ============= =============
Cash paid for taxes................ $ 15,122,000 $ 8,845,000 $ --
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.

47
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS

(1) PRINCIPLES OF PRESENTATION:

On March 2, 1995, pursuant to the amended Exchange and Subscription
Agreement and Plan of Reorganization, PanAmSat Corporation (the "Company"),
PanAmSat, L.P. (the "Partnership") and its partners consummated various
transactions whereby the Company acquired the Partnership and converted it to
corporate form. In connection therewith, (i) Rene Anselmo and affiliated persons
and entities (the "Anselmo Group") exchanged their interests in the
Partnership for shares of Class A Common Stock representing approximately 49.66%
of the outstanding common stock of the Company, (ii) Univisa Satellite Holdings,
Inc. ("Univisa") exchanged its interest in the Partnership for shares of Class
B Common Stock representing approximately 50.15% of the outstanding common stock
of the Company and (iii) a partner of the Partnership exchanged his interest in
the Partnership for shares of Common Stock representing approximately 0.19% of
the outstanding common stock of the Company. The Amended and Restated
Certificate of Incorporation of the Company provides, among other things, the
holders of the Class A Common Stock with the ability to elect a majority of the
Company's board of directors and the Anselmo Group and Univisa with a veto over
certain significant corporate transactions of the Company. On September 27,
1995, the Company completed an initial public offering of 18,920,000 shares of
common stock, including 4,595,676 shares held by certain selling stockholders,
and received net proceeds of approximately $229 million.

Prior to the conversion, the Partnership operated under terms of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") dated December 31, 1992. Univisa, a wholly owned subsidiary of
Grupo Televisa, S.A. ("Televisa") and a general partner in the Partnership,
made cash investments in partnership units of $200 million.

All assets and liabilities transferred were reflected at historical cost by
the Company and the Partnership. Accordingly, the accompanying financial
statements reflect the combined assets, liabilities, equity and operations of
the Company and the Partnership as if they had operated as a single entity since
their respective dates of organization. The accompanying financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.

(2) BUSINESS DESCRIPTION:

The business of the Company is to operate an international
telecommunications satellite system. The Company currently provides video, data
and voice telecommunications services in North America, South America, Europe
and Africa via its PAS-1 satellite ("PAS-1") and PAS-3 satellite ("PAS-3"),
in the Asia-Pacific region via its PAS-2 satellite ("PAS-2") and in Europe,
Africa and Asia via its PAS-4 satellite ("PAS-4"). PAS-1 was launched in June
1988, PAS-2 in July 1994, PAS-4 in August 1995 and PAS-3 in January 1996. The
Company currently intends to construct and deploy four additional satellites
over the Atlantic, Atlantic, Indian, and Pacific ocean regions, respectively,
(see Note 6). In addition, the Company intends to pursue providing satellite
capacity to customers offering direct to home ("DTH") services internationally
and has entered into various agreements relating to the provision of satellite
capacity for DTH services in Latin America and Spain (see Note 4). The
development, launch and operation of telecommunications satellites involve
significant risks of construction delays, launch delays, launch failure or
damage to a satellite following its launch which may reduce its performance or
result in its destruction. Such delays, launch failures or damage would
adversely affect operating results.

The Company holds a license from the Federal Communications Commission
("FCC") to operate PAS-1 in geostationary orbit at 45(degrees) West Longitude,
PAS-2 at 191(degrees) West Longitude, PAS-3 at 43(degrees) West Longitude and
PAS-4 at 68.5(degrees) East longitude. The Company has obtained or applied for
authorizations from the FCC for an all Ku-band satellite, additional C/Ku-band
hybrid satellites and for new Ka-band satellites. Conditional authority has been
received for additional satellites at 72(degrees) East Longitude and 43
(degrees) West Longitude (to be co-located with PAS-3). The Company has also
filed applications with the FCC

48
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

for additional C/Ku-band hybrid satellites at 194(degrees) West Longitude,
58(degrees) West Longitude, 68.5(degrees) East Longitude (to be co-located with
PAS-4), 79(degrees) West Longitude (the Company has informally requested the FCC
associate this application with the 81 degree West Longitude orbital location),
and 93(degrees) West Longitude. The Company has filed applications with the FCC
for Ka-band satellites at 58(degrees), 79(degrees), 43(degrees), 45(degrees),
and 103(degrees) West Longitude, and at 169(degrees), 166(degrees),
68.5(degrees), and 72(degrees) East Longitude. The Company's wholly-owned
subsidiary, PanAmSat Carrier Services, Inc., has an FCC authorization to provide
common carrier service via PAS-1. The Company also holds licenses to provide
domestic and international satellite communications services in France, Germany,
the United Kingdom, Ecuador, Argentina, Pakistan and Japan.

The Company provides telecommunications services under long-term and
occasional (spot) booking arrangements, a majority of which are with foreign
entities, including Univisa affiliates.

The following summarizes the Company's foreign and domestic sales:

<TABLE>
<CAPTION>
DECEMBER31,
---------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States..................... $ 98,983,567 $ 49,936,228 $26,175,302
Central and South America......... 47,673,139 29,078,131 23,680,874
Other foreign..................... 91,177,149 33,217,594 8,854,296
------------ ------------ -----------
$237,833,855 $112,231,953 $58,710,472
============ ============ ===========
</TABLE>

Future cash payments expected from customers under all long-term
arrangements for satellites in service (see Note 5) aggregate approximately $2.4
billion as of December 31, 1996, excluding any DTH service agreements described
in Note 4. Such cash payments may be reduced for outage or transponder failure
and may be further reduced for "lowest price" provisions for like transponder
capacity given to similarly situated customers. Approximately $229.8 million of
such arrangements at December 31, 1996 are terminable at the customer's option
after a minimum service period.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES--

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amount of 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 materially
from those estimates.

REVENUE RECOGNITION--

The Company enters into contracts to provide satellite capacity and related
services. These contracts generally provide for the use of satellite and, in
certain cases, earth station and teleport facilities for periods ranging from
one year to the life of the satellite. Virtually all contracts stipulate payment
terms in U.S. dollars.

Service agreements and occasional (spot) services. Revenues under service
agreements and occasional (spot) services are recognized as services are
performed and billed. The Company has certain obligations, including providing
spare or substitute capacity if available, in the event of satellite service
failure under certain long-term agreements. If no spare or substitute capacity
is available, the agreements may be terminated. Except for certain deposits, the
Company is not obligated to refund payments previously made.

Transponder contracts. Long-term transponder contracts provide for use of
a transponder for the life of the transponder. Payments for the transponder are
made over a shorter period, usually seven years. Uncured

49
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

transponder failures during the payment period result in cessation of customer
payments. The Company is not required to refund any portion of customer payments
if a transponder fails. The economic risk of loss passes to the customer upon
receipt of final payment by the Company.

Revenue under transponder contracts is recognized ratably over the payment
period, and a pro rata share of the cost of the satellite system and a pro rata
share of future telemetry, tracking and control ("TT&C") costs for the life of
the satellite are expensed over the same period. Accordingly, no revenue will be
recognized beyond the payment period, usually seven years, and all estimated
costs related to these transponders will have been recognized as of the final
payment date. Revenues of approximately $3.2 million, $3.6 million, and $4.5
million for the years ended December 31, 1996, 1995 and 1994, respectively, are
included in the accompanying statements of operations relating to such
contracts.

CASH AND CASH EQUIVALENTS--

Cash and cash equivalents consists of cash on hand and highly liquid
investments with maturities at date of acquisition of three months or less.

ACCOUNTS RECEIVABLE--

Accounts receivable include amounts earned under service agreements and
occasional (spot) services which are billable as performed.

MARKETABLE SECURITIES--

Marketable securities consist of debt securities issued by the United
States Treasury and other U.S. government corporations and agencies, corporate
debt securities and other securities (primarily investments in money market
funds consisting of the aforementioned securities) and have maturity dates
within one year. The carrying amounts of these securities are approximately
$130.8 million, $103.7 million and $144.7 million, respectively at December 31,
1996. The Company has classified the debt securities as held-to-maturity and,
accordingly, are recorded at amortized cost, which approximates fair value. The
money market funds are recorded at cost plus accrued income, which approximates
fair value. Proceeds of these securities are intended to be used for the
satellite systems under development and, accordingly, are classified as long-
term.

SATELLITES AND OTHER PROPERTY AND EQUIPMENT--

Satellites and other property and equipment are stated at historical cost.
The cost of the PAS-1, PAS-2, PAS-3 and PAS-4 satellite system includes all
construction costs, incentive obligations, launch costs, launch insurance,
direct development costs, and capitalized interest. Substantially all other
property and equipment consists of the Company's teleport facilities.

Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets as follows:

<TABLE>
<CAPTION>
ESTIMATED LIVES (YEARS)
-----------------------
<S> <C>
PAS 1, PAS 2, PAS-3, and PAS-4 13-15
satellite system..................
Communications equipment........... 7
General support equipment.......... 5-10
Buildings.......................... 25
</TABLE>

The estimated useful lives of the satellites were determined by an
engineering analysis performed at the in-service dates. The original estimated
useful lives are periodically reviewed using current TT&C data provided by
various service providers. To date, no significant change in the original
estimated useful lives has resulted. The telecommunications industry is subject
to rapid technological change which may require the Company to revise the
estimated useful lives of its satellites and communications equipment or to
adjust their carrying amounts.

50
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Research and development costs and maintenance and repairs are charged to
operations as incurred.

SATELLITE SYSTEMS UNDER DEVELOPMENT--

Expenditures for satellite systems under development include construction,
launch and launch insurance progress payments, certain direct development costs,
capitalized interest, and components for a spare satellite (see Note 6).

Cost of satellites which are lost at launch are carried, net of any
insurance proceeds, in satellite systems under development. The remaining net
amounts are depreciated proportionately over the estimated useful lives of
related satellites placed in service.

DEBT ISSUANCE COSTS--

Debt issuance costs relate to the issuance of the Company's 9-3/4% Senior
Secured Notes ("Senior Secured Notes") and the Company's 11-3/8% Senior
Subordinated Discount Notes ("Discount Notes") in August 1993. These costs
totaled approximately $16.2 million at December 31, 1996, and are being
amortized over the life of the Notes using the interest method. The accumulated
amortization at December 31, 1996 is approximately $6.7 million.

INCOME TAXES--

As a result of the conversion of the Partnership to a corporation on March
2, 1995, the Company files corporate federal and state income tax returns. This
change in tax status was recognized by establishing deferred tax assets and
liabilities for temporary differences between the tax basis of assets and
liabilities and amounts reported in the balance sheet at the date of conversion
(see Note 9).

The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax basis of assets and liabilities
and amounts reported in the balance sheets. The overall change in deferred tax
assets and liabilities for the period measures the deferred tax expense for the
period. Effects of changes in enacted tax laws on deferred tax assets and
liabilities are reflected as adjustments to tax expense in the period of
enactment.

EARNINGS PER SHARE--

The unaudited proforma earnings per share have been calculated and
presented on a pro forma basis (i) to reflect the proforma adjustments to the
income tax provision as if the Company had been incorporated and (ii) as if the
shares issued to effect the conversion of the Partnership to corporate form and
to effect a .859399 for 1 reverse split of the Company's common stock on
September 15, 1995 were outstanding for all periods presented and (iii) to
reflect the weighted average number of common shares issued in the Company's
initial public offering. When dilutive, stock options are included in the
weighted average number of shares outstanding using the treasury stock method.

NET INCOME (LOSS) ALLOCATION--

The Partnership Agreement had provided that profits and losses of the
Partnership be allocated among the partners' percentage interests.

(4) SATELLITE CAPACITY FOR DTH SERVICES:

In November 1995, the Company announced that it would serve as a satellite
service provider for a Latin America DTH service ("Latin America DTH") to be
offered by the Globo Organization ("Globo"), Televisa, The News Corporation
Limited ("News Corp.") and Tele-Communications International, Inc. ("TCI").
On February 29,

51
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

1996, the Company signed a binding letter agreement with Globo, Televisa, and
News Corp. (the "1996 Letter Agreement") to provide service to a series of joint
ventures (the "Latin America JVs") to be formed by them and TCI on 48
transponders ultimately on PAS-5 and PAS-6 with temporary service on PAS-3
pending the commencement of service on PAS-6. Also under the 1996 Letter
Agreement, Globo, Televisa, and News Corp. have agreed to proportionally
guarantee 100 percent of the fees for transponder services to the Latin America
JVs. These guarantee obligations may be assigned to TCI and, with the Company's
prior written consent, to new equity participants in the Latin America JVs. The
Company will receive minimum service fees equivalent to the Company's best
estimate of the cost per transponder to the Company of designing, launching,
operating and insuring each satellite for the transponders used by the Latin
America JVs. The Company also will receive additional revenue based on
subscriber revenues of the Latin America JVs above a certain threshold, except
that the transponders on PAS-3 and PAS-6 that will be used by the Latin America
JV operating in Brazil will be charged on a fixed fee basis. On June 26, 1996, a
full-scale agreement was executed for service in Brazil on twelve transponders
(the "Brazil Agreement"). The 1996 Letter Agreement remains in force for the
remaining 36 transponders. Globo and News Corp. have proportionately guaranteed
the obligations under the Brazil Agreement.

On September 20, 1996, the Company entered into an agreement with Televisa
S.A. de C.V., an affiliate of Televisa, to provide transponder service on up to
five PAS-3 Ku-band transponders, at least three of which will be used for
distribution of television services in Spain, which may include DTH services.
The service fees reflect market rates. This agreement superseded a verbal
agreement in principle with Televisa whereby PanAmSat and Televisa had intended
to form a joint venture to offer DTH services in the Iberian Peninsula.

Concurrently with the Combination (see Note 13) and immediately following
the Univisa Contribution, 7.5 million shares of New PanAmSat common stock
received by Satellite Company, L.L.C., a Nevada limited liability company ("S
Company") and a subsidiary of Televisa, in connection with the Univisa
Contribution will be repurchased by New PanAmSat for $225 million. Following
such repurchase, either Televisa, S Company and/or their designees will purchase
for $225 million all of PanAmSat's rights to purchase from Televisa equity
interests in certain joint ventures to be formed to offer DTH services in Latin
America and the Iberian Peninsula.

The Company also has significant investments in and commitments for PAS-5
and PAS-6 (see Note 6) which it had intended to use in the proposed DTH
business. Pursuant to the Reorganization Agreement, it is anticipated that the
Company's rights to acquire equity interests in the Latin America JVs will be
sold at the closing of the Reorganization.

(5) SATELLITES AND OTHER PROPERTY AND EQUIPMENT:

The Company's principal operating assets consist of PAS-1, PAS-2, PAS-3 and
PAS-4. The Company has in-orbit insurance coverage of $60 million for PAS-1
through August 26, 1997. In-orbit insurance coverage for PAS-2, PAS-3 and PAS-4
of $188 million, $215 million and $212 million, respectively, expires on May 21,
1997. The Company intends to obtain new in-orbit insurance coverage to become
effective upon these expiration dates. The Company operates terrestrial sites
and network control centers in Homestead, Florida, Ellenwood, Georgia and Napa,
California.

Satellites and other property and equipment balances are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Satellites in service (PAS 1,
PAS-2, PAS-3 and PAS 4)....... $ 800,336,064 $568,338,771
Buildings and leasehold
improvements................... 22,821,996 14,554,391
Communications and support
equipment...................... 39,536,928 25,057,147
Land............................ 1,988,607 1,977,002
------------ ------------
864,683,595 609,927,311
Less: Accumulated depreciation
and amortization............... (138,091,220) (79,177,520)

$ 726,592,375 $530,749,791
============= ============
</TABLE>

52
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

(6) SATELLITE SYSTEMS UNDER DEVELOPMENT:

The Company has contracted with Hughes Aircraft Company ("Hughes") to
construct a satellite, PAS-5, to be deployed over the Atlantic Ocean region. The
Company has also contracted with Space Systems/Loral ("Loral") for the
construction and delivery of PAS-6, PAS-7 and PAS-8, and for the option to
purchase up to two additional satellites and up to four spare satellites
pursuant to the Loral Satellite Contract. PAS-6, PAS-7 and PAS-8 are to be
deployed over the Atlantic, Indian and Pacific ocean regions, respectively. PAS-
5 and PAS-6 will be suitable for DTH broadcast purposes and are scheduled to be
delivered in 1997. PAS-7 and PAS-8 are scheduled to be delivered in 1997 and
1998, respectively.

The Hughes and Loral contract terms include progress payments payable
monthly during the period of the satellites' construction and incentive
obligations payable monthly with interest ranging from 9.5% to 10% per annum
over a period of 10-15 years, scheduled to commence after the delivery and
launch of the satellites. The incentive obligations are subject to reduction or
refund (as applicable) if the satellites fail fully to meet specific technical
operating standards. The contracts contain rights to cancellation, which would
result in the forfeiture of all progress payments with escalating termination
payments.

The Company has entered into launch contracts with International Launch
Services ("ILS") for the launch of three satellites and Arianespace S.A.
("Arianespace") for the launch of one satellite. The Company expects to launch
PAS-5 and PAS-8 under the ILS contract from Khazakhstan using Proton rockets and
PAS-6 using an Ariane IV launcher. The Company has also entered into a multi-
launch agreement ("Multi-Launch Agreement") with Arianespace which provides
for one firm launch, which the Company plans to use for PAS-7, and rights for
additional launches. The Company has exercised its rights for an additional
launch in late 1999 or early 2000 for an unspecified satellite. The launch
contracts provide that the Company may terminate such contracts at its option,
and the contracts include termination liability schedules that increase in
magnitude as the timing of any such termination approaches the date of launch.
The maximum termination liability, calculated in accordance with such schedules,
for launch services that have been ordered in connection with any individual
launch (including postponement fees) is approximately $45.0 million. Payments
made by the Company prior to the Company's election to terminate any such launch
contract are offset against any such liability owed.

The Company has obtained policies for up to an aggregate of $1.2 billion of
launch insurance for PAS-5, PAS-6, PAS-7, PAS-8 and a replacement satellite, or
if no replacement is required, a satellite to be designated as PAS-9. The
Company expects the total cost (including costs for engineering, construction,
launch, launch insurance, direct development costs and certain components for a
spare satellite) of PAS-5, PAS-6, PAS-7, and PAS-8 to be approximately $846
million, of which the Company has paid $429 million at December 31, 1996. The
Company has contracted commitments for approximately $417 million at December
31, 1996 related to its satellite systems under development.

53
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

<TABLE>
<CAPTION>
(7) LONG-TERM DEBT:
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
93/4% Senior Secured Notes due 2000 (a).. $175,000,000 $175,000,000
113/8% Senior Subordinated Discount
Notes due 2003--accreting to
$460,206,000 in August 1998
(including accreted
interest of $121,288,807
and $80,947,197 at December 31,
1996 and 1995, respectively) (b)........ 386,289,228 345,947,618
Incentive obligations--payable to
Hughes in monthly installments
including interest at 10%
collateralized by a security
interest in three transponders on
PAS 2, PAS-3 and PAS-4, respectively.... 67,201,987 55,111,069
Deferred satellite performance
incentive--payable to GE Astro in equal
monthly installments of $66,075
including interest at 10%, maturing
September 1998; collateralized
by a security interest in the
proceeds of future transponder sales
from PAS-1.............................. 1,267,969 1,899,661
Note payable--payable to Hughes Network
Systems, Inc. in monthly
installments including interest
at 8.5% collateralized by
communications equipment................ 417,133 612,563
------------ ------------
630,176,317 578,570,911
Less--Current maturities................. 4,166,778 3,287,250
------------ ------------
$626,009,539 $575,283,661
============ ============
</TABLE>

- -------------
(a) Interest on the Senior Secured Notes is payable semi-annually on February 1
and August 1 of each year, commencing February 1, 1994. Interest incurred
for the years ended December 31, 1996 and 1995 totaled approximately $17
million per year. The Senior Secured Notes are redeemable after August 1,
1998, in whole or in part, at the option of the Company, at a price of
101.625% declining to 100% of principal plus accrued and unpaid interest, if
any, to the date of redemption. The Senior Secured Notes rank senior in
right of payment to all subordinated indebtedness of the Company and pari
passu in right of payment with all Senior Debt (as defined in the indenture
for the Senior Secured Notes). The Senior Secured Notes are secured by liens
on certain assets of the Company, including PAS-1, PAS-2, PAS-3 and PAS-4.
(b) Interest on the Discount Notes accretes prior to August 1, 1998 at which
time the principal outstanding will be approximately $460.2 million.
Interest accreted for the years ended December 31, 1996 and 1995 totaled
approximately $40.3 million and $36.1 million, respectively. After August 1,
1998, interest on the Discount Notes will be payable semi-annually on
February 1 and August 1 of each year, commencing on February 1, 1999. The
Discount Notes are not redeemable prior to August 1, 1998. Thereafter, the
Discount Notes are redeemable, in whole or in part, at the option of the
Company, at a price of 104.266% declining to 100% of principal plus accrued
and unpaid interest, if any, to the date of redemption. The Company will be
required to redeem 25% of the original aggregate principal amount of the
Discount Notes at a redemption price equal to 100% of the principal amount
thereof together with accrued and unpaid interest each of August 1, 2001 and
August 1, 2002. The Discount Notes are unsecured and are subordinated in
right of payment to all present and future Senior Debt of the Company,
including the Senior Secured Notes.

The indentures relating to the Senior Secured Notes and Discount Notes
contain restrictive covenants that, among other things, impose limitations on
the Company and its subsidiaries with respect to their ability to (i) incur
additional indebtedness; (ii) make certain investments; (iii) sell assets or
apply the proceeds therefrom; (iv) enter into transactions with affiliates and
(v) pay dividends. Under the financial covenants included in these restrictions
the Company is not currently permitted to incur additional indebtedness, except
as described below, or to make certain investments or pay dividends.

Under terms of the Senior Secured and Discount Notes, the Company is
limited to borrowing up to $30 million of additional bank debt and/or $15
million of debt in connection with the purchase of certain communications
equipment, excluding satellite incentive obligations for PAS-1, PAS-2, PAS-3,
and PAS-4. No such indebtedness or availability of such indebtedness existed at
December 31, 1996.

54
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------
<S> <C>
1998.................. $ 4,372,467
1999.................. 3,974,298
2000.................. 179,390,470
2001.................. 4,850,219
2002 and thereafter... 433,422,085
------------
$626,009,539
============
</TABLE>

The fair value of the Company's debt exceeded the carrying value by
approximately $46.5 million at December 31, 1996. Capitalized interest totaled
approximately $39.5 million, $37.8 million and $41.0 million in 1996, 1995 and
1994, respectively, and is included in satellite systems under development.

(8) PREFERRED STOCK

On April 21, 1995, the Company consummated the sale of 275,000 shares of
Preferred Stock and received proceeds of approximately $261.5 million, net of
underwriting discounts and commissions of approximately $10.7 million and
offering expenses of approximately $2.5 million. The Company anticipates that
all of such net proceeds will be applied to the development, construction and
launch of PAS-5 and PAS-6.

Dividends on the Preferred Stock are payable quarterly in arrears
commencing on July 15, 1995. On or before April 15, 2000, the Company may, at
its option, pay dividends in cash or in additional fully paid and non-assessable
shares of Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends. After April 15, 2000, dividends may be paid only
in cash. As of December 31, 1996, 340,122 shares have been issued and accrued.

The Preferred Stock is not redeemable prior to April 15, 2000. On or after
April 15, 2000, the Preferred Stock is redeemable at the option of the Company,
in whole or in part from time to time at a redemption price of 106.375%
declining to 100% of liquidation value plus accrued and unpaid dividends. The
Preferred Stock is subject to mandatory redemption in whole on April 15, 2005 at
a price equal to the liquidation preference thereof plus accrued and unpaid
dividends. Subject to certain conditions, the Company will be required to
exchange all the outstanding shares of Preferred Stock into the Company's 12-
3/4% Senior Subordinated Notes due 2005 as soon as practicable following the
date that such exchange is permitted by the terms of the Senior Secured Notes
and the Discount Notes.

The fair value of the Company's Preferred Stock exceeded the carrying value
by approximately $75.1 million at December 31, 1996.

(9) INCOME TAXES:

Prior to the conversion, the Partnership was not subject to federal or
state income taxes. The partners were required to report their share of income
or loss in their respective income tax returns. Under terms of the Partnership
Agreement, quarterly distributions were required for income taxes for each year
that the Partnership had taxable income. Such distributions were calculated
using the highest effective combined U.S. federal, state, local and foreign tax
rate that was imposed on any partner which was a U.S. person with respect to
such partner's allocable share of taxable income of the Partnership for such
taxable year. At December 31, 1994, the Partnership was owed approximately $6.7
million from its partners for quarterly tax distributions made prior to the
launch of PAS-2, which resulted in a loss for the year ended December 31, 1994.
Such amounts were repaid in 1995.

Taxable income (loss) for the Company and its predecessor entities was
approximately $3.4 million and $(5.5 million) for 1995 and 1994, respectively.
Substantially all of the difference between the Company's and its predecessors'
book income and taxable income (loss) was attributable to differences in
depreciation for tax and

55
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

financial reporting purposes and customer deposits. As a result of the
Partnership conversion, a net deferred tax liability of approximately $22.9
million was recorded March 2, 1995, the conversion date.

The temporary differences that give rise to the net deferred tax liability
and their approximate tax effects as of December 31, 1996 and 1995 are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Satellites and other property $103,344 $ 52,199
and equipment
Customer deposits (22,517) (16,694)
Alternative minimum tax credits (16,854) (3,097)
Other (2,342) (835)

Net deferred tax liability $ 61,631 $ 31,573
================ =================
</TABLE>

The components of the provision for income taxes for the year ended
December 31, 1996 and for the period March 2, 1995 through December 31, 1995 are
as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Current provision
Federal...................... $13,721 $ 7,191
State........................ 1,641 961
Deferred provision.............. 31,070 8,677
---------------- ----------------
Total provision.......... $46,432 $16,829
================ ================
</TABLE>

The provisions for income taxes for the year ended December 31, 1996 and
for the period March 2, 1995 through December 31, 1995 are reconciled to the
amount computed by applying the statutory federal tax rate to income before
taxes as follows (in thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Statutory rate................... $37,853 $14,480
Permanent differences............ 1,772 174
State income taxes, net of
federal benefit................. 6,807 2,175
----------------- -----------------
Total provision for
income taxes............... $46,432 $16,829
================= =================
</TABLE>

As of December 31, 1996, subject to review by the Internal Revenue Service,
the Company has approximately $16.9 million of alternative minimum tax credit
carryforwards which have no expiration date.

PRO FORMA TAX EFFECTS (UNAUDITED)--

The accompanying statements of operations present, on an unaudited pro
forma basis, net income for the years ended December 31, 1995 and 1994 as if the
Company had been taxed at corporate federal and state tax rates and as if the
conversion occurred on January 1, 1994. The pro forma tax effects assume the net
deferred tax liability as described above would have been provided as the
related temporary differences arose.

56
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

The components of the pro forma provisions for income taxes for the years
ended December 31, 1995 and 1994 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
Current (benefit) provision
<S> <C> <C>
Federal....................... $ 5,444 $(1,997)
State......................... 832 (218)
Deferred provision............ 9,346 9,460
----------------- -----------------
Total pro forma
provision................ $15,622 $ 7,245
================= =================

</TABLE>

The pro forma provisions for income taxes for the years ended December 31,
1995 and 1994 are reconciled to the amounts computed by applying the statutory
federal tax rate to income before taxes as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Statutory rate................ $12,031 $6,299
Permanent differences......... 1,371 --
State income taxes, net of
federal benefit.............. 2,220 946
----------------- -----------------
Total pro forma
provision for income
taxes................... $15,622 $7,245
================= =================
</TABLE>

Substantially all of the difference between the Company's income for
financial reporting purposes and pro forma taxable income is attributable to the
difference in depreciation and customer deposits for tax and financial reporting
purposes, and, in 1995, the permanent difference created by a $3.8 million
charge related to a grant of a limited partnership interest in the Partnership
to the Executive Vice President of the Company, for which the income tax benefit
was specially allocated to the Anselmo Group.

(10) RELATED PARTY TRANSACTIONS:

The Company has an employment agreement with Frederick A. Landman,
President and Chief Executive Officer, which terminates December 31, 1997
subject to automatic annual renewal. Total annual base compensation is $600,000
under this agreement.

The Company has earned revenues of approximately $9.1 million, $3.9 million
and $5.0 million for 1996, 1995 and 1994, respectively, from entities affiliated
with Univisa. In addition, approximately $193.5 million of the Company's
expected future cash payments at December 31, 1996 for PAS-1 and PAS-3 under
long-term arrangements are from the same entities.

The Company had a commitment to purchase certain equipment for a minimum of
$2.2 million in connection with the DTH venture described above. This commitment
has been canceled by the Company and certain costs associated with this
termination have been, and any additional costs will be, reimbursed by Televisa
under a separate indemnification agreement.

Certain engineering and technical services are provided by Rubin Bednarek &
Associates, a firm in which an executive of the Company, Robert Bednarek, was a
principal until December 31, 1995. Fees paid to this firm were approximately
$1,435,000 and $1,097,000 for the years ended December 31, 1995 and 1994
respectively.

57
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

(11) EMPLOYEE BENEFIT PLANS:

NON-QUALIFIED PLANS--

In December 1991, a predecessor company adopted non-qualified phantom stock
plans. In connection with the conversion of the Partnership into a corporation,
the plans were assumed by the Company and the Partnership recorded a
compensation charge and a liability of approximately $2.8 million, which was the
estimated fair value of the phantom shares at that time. The Company was
obligated to adjust this liability at each balance sheet date to the then
current estimate of fair value. Accordingly, the Company recorded additional
charges of $1.7 million in 1995. The liability was paid in connection with the
Company's initial public offering.

Also in connection with the conversion of the Partnership, the Executive
Vice President of the Company was granted a Partnership interest from the
Anselmo Group which was exchanged for Class A common stock upon the consummation
of the conversion. As a result, the Partnership recorded a non-recurring
compensation charge of approximately $3.8 million with an offsetting increase to
capital.

1995 STOCK PLAN--

Effective March 2, 1995, the Company adopted the PanAmSat Corporation Long-
Term Stock Investment Plan (the "Stock Plan"), which provides for the granting
of non-qualified stock options, incentive stock options, alternate appreciation
rights, restricted stock, performance units and performance shares to executive
officers and other key employees of the Company, and to other service providers,
including independent contractors of the Company. Restricted stock, performance
units and performance shares may be granted in the discretion of the Committee
(as defined below) on such terms as the Committee may decide. The maximum number
of shares of common stock which may be issued under the Stock Plan is 5,000,000,
and the maximum number of shares of common stock which may be issued to any
grantee pursuant to the Stock Plan is 2,000,000. The Stock Plan is administered
by a committee of the Board of Directors (the "Committee") consisting of at
least two directors of the Company. As of December 31, 1996, options for
1,057,345 shares of common stock have been granted under the Stock Plan,
including options for 100,000 shares granted to non-employees. Such options are
exercisable at prices ranging from $17.00 to $28.75 per share (the stock's
market price at the date of grant) and vest ratably over five years.

The Company accounts for the Stock Plan under APB Opinion No. 25. Had
compensation cost for this plan been determined consistent with SFAS No. 123,
the Company's net income (loss) and earnings (loss) per share would have been
reduced as follows:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C>
Net income (loss)........... As Reported $20,297,877 $(8,430,177)
Pro Forma 19,411,228 (9,279,621)
Earnings (loss) per share... As Reported $ 0.20 $ (0.08)
Pro Forma 0.19 (0.09)
</TABLE>

A summary of the status of the Company's Stock Plan at December 31, 1996
and 1995 and changes during the years then ended is presented in the table and
the narrative below:

<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
SHARES WTD. AVG. SHARES WTD. AVG.
(000'S) EX PRICE (000'S) EX PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>

Outstanding at beginning of year......... 1,042 17 --
Granted.................................. 63 23 1,047 17
Exercised................................ (48) 17 (5) 17
------ ------
Outstanding at end of year............... 1,057 17 1,042 17
====== ======
Weighted average fair value of
options granted......................... $ 4.94 -- $ 6.76 --
</TABLE>

58
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

994,000 of the 1,057,000 options outstanding at December 31, 1996 have
exercise prices of $17 with a weighted average exercise price of $17 and a
weighted average remaining contractual life of 4 years. 199,000 of these options
are exercisable. The remaining 63,000 options have exercise prices between $17
and $29, with a weighted average exercise price of $23 and a weighted average
remaining contractual life of 5 years. None of these options are currently
exercisable. There were no options exercisable at December 31, 1995.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rate of 5.84 percent and 5.35 percent; expected dividend yield of 0 percent and
0 percent; expected lives of 5.0 and 1.7 years; expected stock price volatility
of 33.2 percent and 33.2 percent.

COMPENSATION PLANS--

On April 22, 1996, the Company adopted a General Severance Policy, an
Employee Separation Plan and an Executive Severance Pay Program, the first two
of which were amended by action of the Board of Directors on October 28, 1996.
Under the General Severance Policy, all employees would be entitled to receive a
minimum of two weeks' salary and a maximum of 29 weeks' salary upon termination
without cause and upon the execution by the employee of a release of all claims
against the Company. Under the Employee Separation Plan any employee (other than
below) who is terminated without cause following a change in control, as
defined, would be entitled to receive six months' continuation of such
employee's salary and certain benefits. The Executive Severance Pay Program
covers five senior officers and approximately 55 other key employees not covered
by the Employee Separation Plan and provides severance benefits of between 1.5
and 3 times the base salary and cash bonus for each such employee's salary
payable upon a change in control, as defined. The Reorganization (see Note 13)
will constitute a change in control.

In September 1996, the Company adopted a plan to pay a cash bonus to its
employees who would otherwise have qualified for the grant of stock options
under the Company's Long-Term Stock Investment Plan. Such compensation totaling
$4.8 million was paid in October 1996 in lieu of stock options.

(12) COMMITMENTS AND CONTINGENCIES:

Orbital control of satellites in service is maintained by various service
providers under long-term TT&C agreements totaling approximately $66.8 million.
Total annual TT&C costs for satellites in service is approximately $5.2 million
per year. TT&C costs are included in Engineering and Technical Services and are
generally expensed on a straight-line basis over the term of the agreement.

The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Greenwich, Connecticut. These
leases contain escalation provisions for increases in rental due to increased
real estate taxes and operating expenses. Minimum annual rentals of all leases,
exclusive of increases in real estate taxes and operating assessments, are as
follows:

<TABLE>
<S> <C>
1997........ $1,016,100
1998........ 978,188
1999........ 953,792
2000........ 883,939
Thereafter.. 783,416
----------
$4,615,435
==========
</TABLE>

Total rent expense approximated $1,009,000, $825,000 and $546,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.

In March 1996, Comsat Corporation ("Comsat") initiated an action seeking
compensatory damages of $250 million and unspecified punitive damages against
the Company, Televisa and News Corp. The complaint

59
<PAGE>

PANAMSAT CORPORATION

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

alleges that the Company interfered with the alleged termination, by News Corp.,
of an alleged contract between Comsat and News Corp. Although the Company
believes this action is without merit and intends to vigorously contest this
matter, it is unable to predict the final outcome of this action at this time.

(13) AGREEMENT AND PLAN OF REORGANIZATION:

On September 20, 1996 (the "Announcement Date"), the Company and Hughes
Electronics Corporation ("Hughes") announced their agreement to combine their
respective satellite service operations (the "Combination") into a new
publicly held company ("New PanAmSat"). Under the terms of the Agreement and
Plan of Reorganization that was entered into on the Announcement Date, the
Galaxy Business of Hughes will be combined with the Company to form New
PanAmSat. Holders of PanAmSat Common Stock and Class A Common Stock will have
three options to receive payment with respect to their outstanding shares: (a)
one half share of common stock of New PanAmSat and $15 in cash, (b) one share of
common stock of New PanAmSat (subject to proration, as applicable), or (c) $30
in cash (subject to proration, as applicable). The maximum cash consideration to
be paid to the Company's direct and indirect stockholders will be equal to $15
multiplied by the number of shares of Common Stock outstanding and Hughes may
elect to limit the number of shares of New PanAmSat Stock issued to one-half of
the number of shares of PanAmSat Common Stock outstanding at the time. In a
separate but related transaction, New PanAmSat will acquire all of the
outstanding shares of Univisa, Inc., the indirect holder of all of the Class B
Common Stock of the Company, for consideration that is equal in amount and form
(subject to proration, as applicable) to the consideration payable on account of
each share of PanAmSat Common Stock and Class A Common Stock (the "Univisa
Contribution"). Assuming that New PanAmSat pays half stock and half cash as
consideration in the Combination and the Univisa Contribution, immediately after
the Combination, Hughes will own 71.5% of New PanAmSat, unless the Company's
direct and indirect stockholders request more shares of New PanAmSat Common
Stock than cash and New PanAmSat permits additional shares of its common stock
to be issued in lieu of cash to the Company's direct and indirect stockholders.
The Combination requires governmental approval of the U.S. Federal
Communications Commission which is expected to be received within six to 12
months of the Announcement Date.

In connection with the above transactions, the Company has incurred certain
professional and advisory fees totaling $4.8 million for the year ended December
31, 1996. The Company expects these fees will aggregate approximately $20
million, with the majority of the remaining fees payable upon the successful
completion of the Combination. The Reorganization Agreement includes termination
provisions which require that, in the event that the Reorganization Agreement is
terminated by the Company, and the Company consummates or agrees to consummate
certain business combination transactions, PanAmSat will pay $80 million to
Hughes Communications, Inc.

60
<PAGE>

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's Board of Directors is currently fixed at five members.
Directors' terms currently extend until the next annual meeting of stockholders
or until their earlier death, resignation or removal. Executive officers and
other officers are elected or appointed by, and serve at the pleasure of, the
Board of Directors of the Company.

The following table sets forth information concerning the Company's
directors and executive officers as of March 28, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Frederick A. Landman......... 49 President, Chief Executive Officer and
Director
Lourdes Saralegui............ 35 Executive Vice President and Director
Patrick J. Costello.......... 40 Chief Financial Officer and Director
Robert A. Bednarek........... 39 Senior Vice President, Engineering and
Operations
James W. Cuminale............ 44 Senior Vice President and General Counsel
Lawrence W. Dam.............. 50 Director
Guillermo Canedo White....... 37 Director
</TABLE>

FREDERICK A. LANDMAN has been President and Chief Executive Officer of the
Company since September 1995. From October 1994 to September 1995, Mr. Landman
was President and Chief Operating Officer of the Company. Mr. Landman has also
been a Class A Director of the Company since October 1994. He has been
associated with the Company and its predecessors in an executive capacity since
1984. Prior to 1984, Mr. Landman was Executive Vice President at Galavision,
Inc., the pay cable television service of Spanish International Network, Inc.
(now known as Univision) ("SIN"). As Executive Vice President of SIN, Mr.
Landman supervised the successful transition from terrestrial to satellite
delivery of SIN's television programming. SIN was the first U.S. commercial
network to utilize satellite distribution for all of its programming. Mr.
Landman began his 11-year career at SIN in 1973 in the research department.

LOURDES SARALEGUI has been Executive Vice President and a Class A Director
of the Company since October 1994. Ms. Saralegui has been associated with the
Company and its predecessors since 1984. Prior to becoming Executive Vice
President, Ms. Saralegui served as Assistant to the Chairman, Director of
Development Broadcast Transponder Sales and Fixed International Broadcast
Services, and Vice President.

PATRICK J. COSTELLO joined the Company in 1992 as Chief Financial Officer.
In October 1996 he became a Class A Director of the Company, replacing Reverge
Anselmo after Mr. Anselmo's resignation. From 1985 through 1992, Mr. Costello
was a practicing Certified Public Accountant. Mr. Costello provided tax,
accounting and management advisory services to the Company from 1987 to May
1992.

ROBERT A. BEDNAREK has been Senior Vice President, Engineering and
Operations of the Company since January 1996. He joined the Company in 1990 as
a Vice President. Mr. Bednarek was formerly Vice President of Rubin, Bednarek &
Associates, a communications engineering consulting firm, of which he is a co-
founder. Prior to co-founding Rubin, Bednarek & Associates, he was Deputy Chief
Scientist at the Corporation for Public

61
<PAGE>

Broadcasting. As a member of Rubin, Bednarek & Associates, Mr. Bednarek provided
services to the Company from 1984 to 1990.

JAMES W. CUMINALE joined the Company as General Counsel in March 1995. In
January 1996, Mr. Cuminale was elected Senior Vice President and General
Counsel. From 1983 to 1995, Mr. Cuminale was a partner in the law firm of Ivey,
Barnum & O'Mara. As a partner of Ivey, Barnum & O'Mara, Mr. Cuminale provided
legal services to the Company from 1991 to 1995.

LAWRENCE W. DAM has been a Class B Director of the Company since October
1994. Mr. Dam has been President of USHI and Univisa, Inc., subsidiaries of
Televisa, since September 1993 and a member of the Board of Directors of
Univisa, Inc., since 1987. From 1987 to 1993, he was Vice President and General
Counsel of Univisa, Inc. Mr. Dam is a member of the Board of Directors of
Verdugo Banking Company and has been a member of the Board of Directors of PTI
Holdings, Inc. and a member of the Management Committee of Univision Network,
L.P. since September 1993.

GUILLERMO CANEDO WHITE has been a Class B Director of the Company since
July 1995. Mr. Canedo White has been a member of the Board of Directors of
Televisa since 1990 and its Chairman and Chief Corporate Officer since March
1997. Prior to March 1997 he served as Televisa's Vice President of Finance and
Corporate Planning since 1994. From 1990 to 1994, Mr. Canedo served in various
capacities at Televisa, including as Chief Financial Officer and as Vice
President of Strategic Planning.

ITEM 11. EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation earned by the Named Executive Officers for services rendered in all
capacities to the Company for the years ended December 31, 1996; 1995 and 1994,
respectively:

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------------------- ----------- -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Frederick A. Landman 1996 $600,000 $375,000(1) $950,000(2)
President and 1995 500,000 275,000(3) 200,000
Chief Executive Officer 1994 450,000 152,207

Lourdes Saralegui 1996 $375,000 $275,000(1) $500,000(2)
Executive Vice President 1995 320,000 225,000(3) 150,000 $3,849,300(4)
1994 300,000 107,471

Patrick J. Costello 1996 $250,000 $ 75,000(1) $300,000(2) 7,500
Chief Financial Officer 1995 220,000 60,000(3) 75,000 $ 803,539(5)
1994 150,000 27,721

Robert A. Bednarek 1996 $220,000 $ 30,000(1) $225,000(2)
Senior Vice President, 1995 200,000 30,000(3) 75,000 $ 160,701(5)
Engineering and Operations 1994 170,000 20,294

James W. Cuminale(6) 1996 $225,000 $ 45,000(1) $225,000(2)
Senior Vice President, 1995 150,000 30,000(3) 75,000
General Counsel
</TABLE>
- ------------------
(1) Includes payments made in 1997 for bonus payments with respect to fiscal
1996.

(2) The Company did not grant any new stock options to its executive officers in
1996, other than to Patrick Costello, its Chief

62
<PAGE>

Financial Officer. Instead, as a result of the Reorganization Agreement and
in consultation with Hughes Electronics Corporation ("HE"), PanAmSat engaged
Mercer & Co. ("Mercer") to advise as to what companies comparable to
PanAmSat would award on an annual basis in the form of stock options and to
assist the Company in determining the cash value of such stock options.
After consulting with Mercer, PanAmSat set the amount of the cash awards
that would be paid in lieu of stock options. In September 1996 the Company
paid cash awards of $950,000 to Mr. Landman, $500,000 to Ms. Saralegui,
$300,000 to Mr. Costello, $225,000 to Mr. Bednarek and $225,000 to Mr.
Cuminale.

(3) Includes payments made in 1996 for bonus payments with respect to fiscal
1995.

(4) Consists of compensation relating to the grant of a limited partnership
interest in PanAmSat L.P., a predecessor of the Company, in connection with
the Conversion.

(5) Consists of compensation relating to the phantom stock plans of a
predecessor company.

(6) Mr. Cuminale's employment commenced on March 15, 1995.

For 1997, the base salaries of Mr. Landman, Ms. Saralegui, Mr.
Costello, Mr. Bednarek and Mr. Cuminale are $600,000, $375,000, $250,000,
$220,000 and $225,000, respectively.

INFORMATION REGARDING THE COMPANY, LONG-TERM STOCK INVESTMENT PLAN

The following summary of the material provisions of the PanAmSat
Corporation Long-Term Stock Investment Plan does not purport to be complete and
is qualified in its entirety by the terms of the Stock Plan.

Effective March 2, 1995, the Company adopted the Stock Plan, which
provides for the granting of non-qualified stock options ("NQSOs"), incentive
stock options ("ISOs" and, collectively with NQSOs, the "Options"), alternate
appreciation rights ("AARs"), restricted stock, performance units and
performance shares to executive officers and other key employees of the Company,
and to other service providers, including independent contractors of the
Company. Restricted stock, performance units and performance shares may be
granted in the discretion of the Stock Plan Committee on such terms as the Stock
Plan Committee may decide. The maximum number of shares of Common Stock which
may be issued under the Stock Plan is 5,000,000, and the maximum number of
shares of Common Stock which may be issued to any grantee pursuant to the Stock
Plan is 2,000,000. The Stock Plan is administered by the Stock Plan Committee of
the Board of Directors consisting of Lawrence W. Dam and Guillermo Canedo White.
The Company will enter into an agreement with each grantee (each, an
"Agreement") which shall set forth the terms of a grant made pursuant to the
Stock Plan. Approximately 160 persons currently are eligible to participate in
the Stock Plan.

PURPOSE OF THE LONG-TERM STOCK INVESTMENT PLAN

The purpose of the Stock Plan is to align the interests of Stock Plan
participants with those of the Company's stockholders by linking participants'
rewards with stockholder gains; provide participants with an equity ownership in
the Company commensurate with Company performance; provide an incentive to
management for continuous employment with the Company through equity ownership;
and maintain competitive compensation levels.

NQSOS

Unless otherwise provided in an optionee's Agreement, NQSOs will be
fully exercisable on the date of grant for a period of not longer than ten
years. NQSOs will be exercisable at an exercise price per share to be determined
by the Stock Plan Committee and provided in the optionee's Agreement. Unless
otherwise provided in an optionee's Agreement, upon the optionee's termination
of employment by reason of retirement or permanent disability, or in the case of
an independent contractor, upon termination of such independent contractor's
service arrangement, NQSOs will remain exercisable for thirty-six months from
the date of such termination to the extent otherwise exercisable at the time of
termination and during such thirty-six month period. Unless otherwise provided
in an optionee's Agreement, upon the death of the grantee, any NQSO held by such
grantee, to the extent

63
<PAGE>

exercisable on the date of death, may be exercised by the optionee's estate, or
by a person who acquires the right to exercise such NQSO by bequest,
inheritance, or by reason of the optionee's death, provided that such exercise
occurs within both the remaining option term and one year after the optionee's
death. Upon termination for any other reason, all unexercised NQSOs will lapse
unless otherwise provided by the optionee's Agreement or the Stock Plan
Committee.

ISOS

Unless otherwise provided in an optionee's Agreement, ISOs will be
fully exercisable on the date of grant for a period of not longer than ten years
(or, in the case of an ISO granted to a Ten Percent Stockholder (as defined in
the Stock Plan), five years). Under the Stock Plan, ISOs will be exercisable at
an exercise price per share of no less than 100% (or, in the case of a Ten
Percent Stockholder, 110%) of the Fair Market Value of a share of Common Stock
on the date of grant. Unless otherwise provided in an optionee's Agreement, upon
the optionee's termination of employment by reason of retirement or permanent
disability, ISOs will remain exercisable for one year from the date of such
termination to the extent otherwise exercisable on the date of termination and
during such one-year period. Under the Stock Plan, upon the death of an optionee
during employment or within three months after termination of employment with
the Company, ISOs may be exercised, to the extent exercisable on the date of
death, by the grantee's estate, or by a person who acquires the right to
exercise such ISO by bequest, inheritance or by reason of the optionee's death,
provided that such exercise occurs within both the remaining option term and one
year after the optionee's death. Upon the occurrence of any other termination of
employment, unless otherwise provided by the Stock Plan Committee or in the
optionee's Agreement, all unexercised ISOs will lapse.

ALTERNATE APPRECIATION RIGHTS

Under the Stock Plan, AARs may be granted in tandem with Options,
subject to such additional terms and conditions as the Stock Plan Committee may
prescribe in the optionee's Agreement. AARs will permit the optionee to receive
in the form of Common Stock, upon exercise, 100% of the amount, if any, by which
the Fair Market Value of a share of Common Stock related to the AAR on the
exercise price date exceeds the exercise pace of the Option related to the AAR.
AARs are exercisable only to the same extent as the related Options. Unless
otherwise provided in the optionee's Agreement, AARs will expire upon the
termination of the optionee's employment except in the case of retirement or
permanent disability, or, in the case of an independent contractor, upon
termination of such independent contractor's service arrangement, in which case
the AAR will remain exercisable for six months following the date of such
termination to the extent otherwise exercisable on the date of termination and
during such six-month period.

CHANGE IN CONTROL

The Stock Plan Committee may provide in an optionee's Agreement the
terms and conditions relating to an award under the Stock Plan upon a Change in
Control (as defined in the Stock Plan), including that Options may become
immediately exercisable upon a Change in Control.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO OPTIONS AND ALTERNATE
APPRECIATION RIGHTS

In general, an optionee will not recognize income, and the Company
will not be entitled to a business expense deduction, upon the grant of an NQSO.
Upon exercise of the NQSO, the optionee will recognize ordinary income equal to
the excess of the Fair Market Value of the shares on the date of exercise over
the exercise price of the NQSO. If the optionee includes such amount in income
or the Company complies with applicable reporting requirements, it will be
entitled to a business expense deduction in the same amount and at the same time
as the optionee recognizes ordinary income, subject to any deduction limitation
under Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as
amended (the "Code").

In general, an optionee will not recognize taxable income, and the
Company will not be entitled to any business expense deduction, upon grant or
exercise of an ISO. (However, upon the exercise of an ISO, the excess of the
Fair Market Value on the date of exercise over the exercise price of the shares
will be treated as an adjustment to alternative minimum taxable income.) In
order for the exercise of an ISO to qualify for the foregoing

64
<PAGE>

tax treatment, the optionee generally must be an employee of the Company or a
subsidiary from the date the ISO is granted through the date three months before
the date of exercise, except that special rules apply in the case of death or
disability.

If the optionee has held the shares acquired upon exercise of an ISO
for at least two years after the date of grant and for at least one year after
the date of exercise, upon disposition of the shares by the optionee, the
difference, if any, between the sales price of the shares and the exercise price
of the ISO will be treated as long-term capital gain or loss. If the optionee
does not satisfy these holding period requirements, the optionee will recognize
ordinary income at the time of the disposition of the shares, generally in an
amount equal to the excess of the Fair Market Value of the shares at the time
the ISO was exercised over the exercise price of the ISO. The balance of gain
realized, if any, will be long-term or short-term capital gain, depending upon
whether or not the shares were sold more than one year after the ISO was
exercised. If the optionee sells the shares prior to the satisfaction of the
holding period requirements but at a price below the Fair Market Value of the
shares at the time the ISO was exercised, the amount of ordinary income will be
limited to the amount realized on the sale in excess of the exercise price of
the ISO. The Company and its subsidiaries will be allowed a business expense
deduction to the extent the optionee recognizes ordinary income, subject to any
deduction limitation under Section 162(m).

Upon exercise of an AAR, the optionee will recognize ordinary income
in an amount equal to the Fair Market Value of the shares received on the
exercise date. If the optionee includes such amount in income or the Company
complies with applicable reporting requirements, the Company will be entitled to
a business expense deduction in the same amount and at the same time that the
holder of an AAR recognizes ordinary income, subject to any deduction limitation
under Section 162(m).

Section 162(m) generally disallows a federal income tax deduction to
any publicly-held corporation for compensation paid in excess of $1 million in
any taxable year to the chief executive officer or any of the four other most
highly compensated executive officers who are employed by the Company on the
last day of the taxable year, but does not disallow a deduction for qualified
"performance-based compensation," the material terms of which are disclosed to
and approved by stockholders. The Company has structured the Stock Plan so that
compensation attributable to NQSOs (and related AARs) granted with an exercise
price no less than the Fair Market Value of the Common Stock on the grant date
would not be subject to the deduction limitation.

Special rules may apply to a grantee who is subject to Section 16(b)
of the Exchange Act.

Under certain circumstances, the accelerated vesting or exercise of
Options or AARs, or the accelerated lapse of restrictions on other awards, in
connection with a Change of Control of the Company might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Code. To the extent it is so considered, the optionee may be
subject to a 20% excise tax and the Company may be denied a tax deduction.

MARKET VALUE OF THE SECURITIES UNDERLYING OPTIONS, AARS AND OTHER AWARDS

As of March 24, 1997, the closing price of Common Stock as reported on
the NASDAQ National Market was $28.25 per share.

LONG TERM STOCK INVESTMENT PLAN TABLE

The Company has granted NQSOs under the Stock Plan, effective as of
September 21, 1995. Each NQSO is exercisable at a price of $17 per share and
vests in equal annual installments over five years. Under the Agreements, if
there is a Change in Control, the NQSOs become fully exercisable. The following
table sets forth the number of shares of Common Stock subject to NQSOs granted
to certain persons.

65
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
- ------------------------------------ ----------------------
<S> <C>
Frederick A. Landman,
President, Chief Executive
Officer and Director 200,000

Lourdes Saralegui, Executive
Vice President and Director 150,000

Patrick J. Costello, Chief
Financial Officer 82,500

Robert A. Bednarek, Senior
Vice President, Engineering
& Operations 75,000

James W. Cuminale, Senior
Vice President, General
Counsel 75,000

All current executive
officers as a group

All current directors who are 582,500
not executive officers as a
group --

All employees, including all
current officers who are not
executive officers, as a
group 1,027,295
</TABLE>

OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996

The following table sets forth additional information concerning the
grants of stock options to the Named Executive Officers during the fiscal year
ended December 31, 1996. All stock options indicated on the table below were
granted pursuant to the Stock Plan described above.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------
POTENTIAL REALIZED VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN BASE PRICE(2) EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
- ---------------------------- ------------- --------------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Patrick J. Costello 7,500 11.96 $28.75 4-21-06 $135,605 $343,650
</TABLE>
- ---------------
(1) The options will become exercisable in equal annual installments over a
five-year period commencing on April 22, 1997. The options will vest and
become immediately exerciseable upon the occurrence of a Change of Control.

(2) The exercise price per share of each option was equal to the fair market
value of the stock on the date of grant.

(3) The potential realizable value is calculated in accordance with the
disclosure rules promulgated by the SEC. The hypothetical gains shown are
based on compound annual rates of stock price appreciation of 5% and 10%
from the grant date to the expiration date. The assumed rates of growth are
prescribed by the SEC and are for illustrative purposes only. They are not
intended to predict future stock prices. Actual realized value, if any, will
depend on the market value of the stock at the time of exercise, and no gain
to the optionee is possible without an increase in the stock price.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

There were no exercises of stock options during fiscal 1996 by the
Named Executive Officers.

OPTION VALUES AT FISCAL YEAR ENDED DECEMBER 31, 1996

The following table sets forth information concerning the fiscal year-
end value of unexercised stock options held by each of the Named Executive
Officers. The Company has not granted any stock appreciation rights, either
alone or in tandem with options.

66
<PAGE>

NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED "IN THE MONEY"
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
------------------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- -------------------- --------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Frederick A. Landman 40,000 160,000 $440,000 $1,760,000
Lourdes Saralegui 30,000 120,000 $330,000 $1,320,000
Patrick J. Costello 15,000 67,500 $165,000 $ 742,500
Robert A. Bednarek 15,000 60,000 $165,000 $ 660,000
James W. Cuminale 15,000 60,000 $165,000 $ 660,000
</TABLE>
- -----------------
(1) Options are "in-the-money" at the fiscal year-end if the fair market
value of the underlying securities on such date exceeds the exercise
price of the option. The amounts set forth represent the difference
between the exercise price of the options and $28, which was the closing
price per share of the Common Stock on December 31, 1996 as reported by
the Nasdaq National Market System, multiplied by the applicable number of
options.

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

GENERAL SEVERANCE POLICY

On April 22, 1996, the Board of Directors adopted a general severance
policy for all employees providing for payments upon termination without cause
equal to: (i) one week of salary for every year of service up to five years,
(ii) two weeks of salary for every year of service over five years and (iii)
minimum and maximum severance levels depending upon the nature of such
employee's position at the Company. The Named Executive Officers would receive a
minimum of four weeks' salary and a maximum of 52 weeks' salary as severance.
Other employees of the Company would receive a minimum, depending on their
classification, of two or three weeks' salary and a maximum of 29 weeks' salary
as severance.

EMPLOYEE SEPARATION PLAN

On April 22, 1996, the Board of Directors also adopted an Employee
Separation Plan (the "ESP") providing that for a one-year period following a
"change of control" (as defined below) any employee who is terminated without
cause by the Company would be entitled to receive, in addition to the benefits
covered by the Company's general severance policy, six months' continuation of
such employee's: (i) base salary and annual cash bonus (which shall be prorated
for such period), (ii) medical and dental insurance benefits, (iii) long-term
disability insurance benefits and (iv) life and accidental death and
dismemberment insurance benefits ("Welfare Benefits"). The ESP applies to all
employees of the Company, other than any employee that is otherwise covered by a
Severance Agreement (as defined below). The ESP shall be effective for one year
and is renewable at the Company's option.

Generally, a "change in control" will be deemed to have occurred under
the ESP or the Severance Agreements referred to below upon: (a) the sale of all
or substantially all of the assets of the Company; (b) the loss by the holders
of the Class A Common Stock of the power to elect a majority of the Board of
Directors; (c) a majority of the Board of Directors ceasing to consist of
nominees of the holders of the Class A Common Stock; or (d) a complete
liquidation or dissolution of the Company.

EXECUTIVE SEVERANCE PAY PROGRAM

On April 22, 1996, the Board of Directors also adopted an executive
severance pay program that would be triggered by a change in control. The
program covers approximately 50 senior officers and key employees, including the
Named Executive Officers and 45 other key employees. The program consists of
individual change in control agreements ("Severance Agreements") for all covered
officers and key employees.

The principal purposes of the ESP and the executive severance pay
program are (a) to help assure that executives give impartial consideration to
evaluating and negotiating a potential business combination which

67
<PAGE>

is in the best interest of the Company's stockholders, but which may result in
the loss of, or reduction in, the executive's job; (b) to make the Company's
plans more competitive with severance plans of other comparable companies and to
facilitate the Company's ability to attract, retain and motivate talented
executives in an uncertain, rapidly consolidating communications industry
environment; (c) to provide security and ensure that key executives are retained
during critical negotiations prior to and through any change in control; and (d)
to avoid the legal expense and reduce the management time associated with
contested terminations, to allow for better forecasts of amounts due to
executives terminated after a change in control and to provide for a general
release of legal claims associated with such terminations.

The benefits under the Severance Agreements covering Frederick A.
Landman and Lourdes Saralegui would be triggered if, within two years following
a change in control, (i) the covered officer's employment is terminated with or
without cause by the Company or (ii) the covered officer voluntarily terminates
his or her employment.

The benefits under the Severance Agreements covering Patrick J.
Costello, Robert A. Bednarek and James W. Cuminale would be triggered if, (x)
within two years following a change in control, (i) the covered officer's
employment is terminated without cause, (ii) the covered officer's
responsibilities are materially reduced, (iii) the covered officer's
responsibilities are changed such that they are inconsistent with such officer's
former responsibilities or (iv) the covered officer's location of employment is
moved more than 35 miles from the officer's current location of employment,
unless the covered officer is moved to New York City from the Company's
Greenwich offices, or (y) the covered officer voluntarily terminates employment
at any time during the 30 days following the one year anniversary of the change
in control.

The benefits under the Severance Agreements covering all other key
employees would be triggered if, within two years following a change in control,
(i) the covered officer's employment is terminated without cause, (ii) the
covered officer's responsibilities are materially reduced, (iii) the covered
officer's responsibilities are changed such that they are inconsistent with such
officer's former responsibilities, or (iv) the covered officer's location of
employment is moved more than 35 miles from the officer's current location of
employment, unless the covered officer is moved to New York City from the
Company's Greenwich offices.

Each Severance Agreement will be effective for three years and will
automatically be extended for additional one-year periods unless the Company
gives a termination notice prior to the second anniversary or any subsequent
anniversary of the Severance Agreement.

Severance benefits payable to officers covered by Severance Agreements
are determined by multiplying base salary and a cash bonus component by 3 in the
case of the Named Executive Officers and by 1.5 in the case of remaining key
employees. Covered officers would be entitled to Welfare Benefits until the
earlier of (i) 36 months in the case of Frederick Landman and Lourdes Saralegui,
(ii) 24 months in the case of the remaining three Named Executive Officers and
(iii) 18 months in the case of the remaining key employees, or the obtaining of
similar benefits on reemployment. The Severance Agreements restrict the ability
of (x) the Named Executive Officers and (y) the remaining key employees to
compete with the Company for 18 and 12 month periods following their respective
termination from the Company.

The Company has reserved the right to grant additional severance
benefits to certain key employees that are recently-hired executives. In the
Company's discretion, such severance benefits may be greater than 1.5 but may
not exceed 3 times base salary and a bonus component.

In addition, the Named Executive Officers would be entitled to
reimbursement of any legal fees incurred in connection with the enforcement or
defense of their Severance Agreements.

If a Named Executive Officers becomes subject to the 20% excise tax on
excess parachute payments under Section 4999 of the Code, including, without
limitation as a result of any payments made under the Stock Plan, the Company
would make an additional payment in an amount such that the officer will be in
the same after-tax position as though the 20% excise tax had not been imposed.

68
<PAGE>

For these purposes "bonus" shall generally mean an annual cash amount
that is not less than the greater of the annual cash bonus awarded to an
employee by the Company for the fiscal year preceding the fiscal year in which a
change in control occurs and the bonus set for the fiscal year in which
termination occurs, in any case pro rated for a partial year.

THE LANDMAN EMPLOYMENT AGREEMENT

The Company has an employment agreement with Frederick A. Landman (as
amended, the "Landman Employment Agreement"). The Landman Employment Agreement
requires that Mr. Landman devote all his business time to the business of the
Company. The agreement expires on December 31, 1997 and is automatically
renewable for one-year periods, each December 31, unless the Board of Directors
delivers 90 days' prior written notice not to renew the agreement. The Landman
Employment Agreement terminates upon Mr. Landman's death, disability or
resignation and is also subject to termination at the discretion of the Board of
Directors or if Mr. Landman materially breaches his agreement with the Company.

Under the Landman Employment Agreement, Mr. Landman received a base
salary of $600,000 during 1996. Mr. Landman may also receive an incentive bonus
which may not exceed 33% of Mr. Landman's base salary without the approval of
the Board of Directors.

If Mr. Landman's employment is terminated by the Company other than
for a Material Breach (as defined in the Landman Employment Agreement), or if
Mr. Landman resigns for "good reason" (as defined in the Landman Employment
Agreement), he would be entitled to receive his salary at the rate in effect at
termination until the end of his employment term.

The Landman Employment Agreement also contains a covenant not to
compete with the Company for one year after Mr. Landman leaves the employ of the
Company.

The Landman Employment Agreement was amended to incorporate the
benefits of the executive severance pay program and make certain other
modifications that will conform to the executive severance pay program. See "--
Executive Severance Pay Program" above.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company has no compensation committee or other Board committee
performing equivalent functions, other than the Stock Plan Committee. For the
fiscal year ended December 31, 1996, compensation of the executive officers of
the Company was determined, subject to approval of the Board of Directors, by
Mr. Landman, who was Chairman and Chief Executive Officer of the Company.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Company does not have a Compensation Committee. For 1996, Mr.
Landman, the Company's President and Chief Executive Officer, determined the
compensation to be paid to the Company's executive officers (other than for
himself), subject to approval by the Board of Directors, and Mr. Landman's
compensation was determined by the members of the Board of Directors other than
Mr. Landman.

GENERAL

Total compensation for the Company's executive officers consists of a
base salary, annual cash bonus and, commencing in 1995, long-term incentives,
which may consist of stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, performance units and performance shares.
The annual bonus and long-term incentives are variable, may fluctuate
significantly from year to year and are tied to Company and individual
performance. The 1995 compensation of two of the Company's executive officers,
Messrs. Landman and Bednarek, was governed by the terms of their respective
employment agreements.

69
<PAGE>

To ensure that the interests of the Company's executive officers are
aligned with those of its stockholders, commencing in 1995 a portion of
executive compensation is delivered through an equity component in the Company
consisting, at the discretion of the Stock Plan Committee, of the stock based
awards described above. The value of stock based awards is tied to the long-term
performance of the Company, and such awards provide an incentive that focuses
attention on managing the Company from an owner's perspective and generally
promote a long-term outlook by restricting the grantee's ability to exercise or
to sell, transfer or assign the shares subject to the award until the end of the
specified vesting period. Stock based awards also provide a level of risk and
upside opportunity that encourage executive officer performance in the
achievement of the Company's long-term goals and objectives. The Company did
not grant any new stock options to its executive officers in 1996, other than to
Patrick Costello, its Chief Financial Officer. Instead, as a result of the
Reorganization Agreement and in consultation with Hughes Electronics Corporation
("HE"), PanAmSat engaged Mercer & Co. ("Mercer") to advise as to what companies
comparable to PanAmSat would award on an annual basis in the form of stock
options and to assist the Company in determining the cash value of such stock
options. After consulting with Mercer, PanAmSat set the amount of the cash
awards that would be paid in lieu of stock option. In September 1996 the
Company paid cash awards of $950,000 to Mr. Landman, $500,000 to Ms. Saralegui,
$300,000 to Mr. Costello, $225,000 to Mr. Bednarek and $225,000 to Mr. Cuminale.

BASE SALARY

As noted above, the 1996 base salary for each executive officer was
determined, based on his subjective judgment, by Mr. Landman and approved by the
Board of Directors. The Company believes that in establishing salaries, Mr.
Landman took into consideration, among other things, the development of the
Company and the Company's global satellite system, the individual's performance,
the business environment in which the Company operated and competitive
compensation trends for like jobs at high-growth companies. Mr. Landman has
determined, based on his subjective judgment, the 1997 base salaries to be paid
to the Company's executive officers, which were approved by the Board of
Directors, based upon factors similar to those the Company believes were used to
set 1996 base salaries.

ANNUAL CASH INCENTIVE BONUS

The 1996 cash bonus paid to each executive officer was determined by
Mr. Landman, based on his subjective judgment, taking into account, among other
things, the Company's 1996 results of operations, the Company's financial
position, and the development of the Company and the Company's global satellite
system. Mr. Landman also considered the performance of the business area for
which the executive officer was responsible and the executive officer's
individual performance and position level within, and length of service with,
the Company.

CEO COMPENSATION

Mr. Landman's employment agreement provides for a minimum annual
salary that may be increased annually at the discretion of the Board of
Directors. Mr. Landman's 1996 base salary was $600,000.

In 1997, Mr. Landman received an annual cash bonus in respect of 1996
of $375,000, as compared to $275,000, which was the annual cash bonus that he
received in respect of 1995. Mr. Landman did not receive any stock option
grants in 1996 but instead received a cash payment of $950,000 in lieu of stock
options.

In determining Mr. Landman's annual bonus and base salary, the Board
considered Mr. Landman's contributions to the Company's 1996 results of
operations and financial position. The Board also considered Mr. Landman's
efforts in connection with the development of the Company's satellite system in
1996, the Company's acquisition and launching of additional satellites, the
development of the market for DTH television services utilizing the Company's
satellites, as well as Mr. Landman's individual performance during the year. In
determining Mr. Landman's compensation, the Board of Directors did not attach
specific weights or values to the various factors considered.

The foregoing report is submitted by the members of the Board of
Directors: Frederick A. Landman, Lourdes Saralegui, Patrick Costello, Lawrence
W. Dam and Guillermo Canedo White.

70
<PAGE>

The Board Compensation Committee Report on Executive Compensation
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report on Form 10-K into any filing under
the Securities Act of 1933, as amended, or the Exchange Act and shall not
otherwise be deemed filed under such Acts.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the
shares of Common Stock beneficially owned as of March 28, 1997 by (i) each
person or entity who, insofar as the Company has been able to ascertain,
beneficially owned as of such date more than 5% of the Company's Class A Common
Stock, Class B Common Stock or Common Stock, (ii) each of the directors of the
Company, (iii) all individuals serving as the Company's Chief Executive Officer
and the four other most highly compensated executive officers of the Company for
the fiscal year ended December 31, 1996 (the "Named Executive Officers") and
(iv) all directors and executive officers of the Company as a group (8 persons).

71
<PAGE>

PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES(1)(2) TOTAL CAPITAL STOCK COMBINED CLASS A
------------------------- ------------------------- COMMON STOCK,
CLASS B COMMON PERCENTAGE OF
COMMON COMMON STOCK AND COMMON TOTAL VOTING
NAME CLASS A CLASS B STOCK CLASS A CLASS B STOCK STOCK POWER
- ---------------------------- ----------- --------- ------- ------- ------- ------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anselmo Group
Voting Trust(3)(4)(5) 40,459,432 -- -- 100% -- -- 40.5% 49.2%
Article VII Trust
Created Under the
Rene Anselmo Revocable
Trust Dated June 10, 1994
(3)(5)(16) 28,955,313 -- -- 71.6% -- -- 29.0% 35.2%

Mary Anselmo
(3)(4)(5)(6)(16) 30,845,991 -- -- 76.2% -- -- 30.8% 37.5%
Frederick A.
Landman(3)(4)(5)(7)(14)(16) 4,953,058 -- 40,000 12.2% -- * 4.9% 6.0%
Pier Landman(3)(5)(8)(l2) 540,176 -- -- 1.3% -- -- * *
Reverge Anselmo
(3)(4)(5)(9)(16) 678,031 -- -- 1.7% -- -- * *
Lourdes Saralegui
(3)(4)(5)(10)(14)(16) 374,099 -- 30,000 * -- * * *
Frederick A. Landman
Irrevocable Trust(3)(5)(l2) 2,122,738 -- -- 5.2% -- -- 2.1% 2.6%
Rissa Landman
Trust(3)(5)(12) 94,534 -- -- * -- -- * *
Chloe Landman
Trust(3)(5)(12) 94,534 -- -- * -- -- * *
Rayce Anselmo Trust(3)(5) 756,271 -- -- 1.8% -- -- * *
Patrick J. Costello(14)(15) -- -- 17,567 -- -- * * *
Robert A. Bednarek(14) -- -- 18,000 -- -- * * *
James W. Cuminale(14) -- -- 17,000 -- -- * * *
Lawrence W. Dam -- -- 3,300 -- -- * * *
Guillermo Canedo White -- -- -- -- -- -- -- --
Univisa Satellite
Holdings, Inc.(13) -- 40,459,431 -- -- 100% -- 40.5% 49.2%

All executive officers
and directors as a group
(8 persons) 40,459,432(11) -- 125,867 100% -- * 42.5% 49.2%
</TABLE>
- -----------------------
* Less than 1%.

(1) For purposes of this table, a person or group is deemed to have "beneficial
ownership" of any shares which such person has the right to acquire within
60 days after the date of this Proxy Statement. For purposes of calculating
the percentage of outstanding shares held by each person named above, any
shares which such person has the right to acquire within 60 days after the
date of the Proxy Statement are deemed to be outstanding, but not for the
purpose of calculating the percentage ownership of any other person.

(2) Each share of Class A Common Stock and Class B Common Stock is convertible
into one share of Common Stock.

(3) The address of such person is c/o PanAmSat Corporation, One Pickwick Plaza,
Greenwich, Connecticut 06830.

(4) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are Joint Trustees under the Voting Trust which gives them voting, but not
investment, power over all of the outstanding shares of Class A Common
Stock. The term of the Voting Trust is perpetual. The Voting Trust Agreement
grants to the Article VII Trust a right of first refusal to purchase the
shares of holders of voting trust certificates under certain circumstances.
Each of the Joint Trustees, in his or her capacity as such, may be deemed to
be the beneficial owner of all the shares of Class A Common Stock held by
the Voting Trust, but each Joint Trustee disclaims beneficial ownership of
such shares, other than the shares held in the Voting Trust for his or her
benefit.

(5) The shares of Class A Common Stock in the Voting Trust consist of (i)
28,955,313 shares held for the benefit of the Article VII Trust, (ii)
1,890,678 shares held for the benefit of Mary Anselmo, (iii) 678,031 shares
held for the benefit of Reverge Anselmo, (iv) 540,176 shares held for the
benefit of Pier

72
<PAGE>

Landman, (v) 756,271 shares held for the benefit of a trust for the benefit
of one of Rene Anselmo's children (the Rayce Anselmo trust), for which Mary
Anselmo and Patrick J. Costello are the co-trustees, (vi) 4,953,058 shares
held for the benefit of Frederick A. Landman, (vii) 374,099 shares held for
the benefit of Lourdes Saralegui, (viii) 189,068 shares held for the benefit
of trusts for the benefit of Mr. Landman's minor children (the Rissa Landman
Trust and Chloe Landman Trust) and (ix) 2,122,738 shares held by the
Frederick A. Landman Irrevocable Trust for which Mary Anselmo and Patrick J.
Costello are the co-trustees.

(6) The shares of Class A Common Stock shown to be owned by Ms. Anselmo include
28,955,313 shares owned by the Article VII Trust, for which Ms. Anselmo
is a Joint Trustee and the principal beneficiary and for which Ms. Anselmo
claims beneficial ownership, but does not include 756,271 shares held for
the benefit of one of Ms. Anselmo's minor children (the Rayce Anselmo
trust), for which Ms. Anselmo is the co-trustee and for which shares Ms.
Anselmo disclaims beneficial ownership. The shares shown to be owned by Ms.
Anselmo also exclude an additional 8,857,170 shares of Class A Common Stock
included in the Voting Trust, as to which she disclaims beneficial
ownership.

(7) The shares of Class A Common Stock shown to be owned by Mr. Landman do not
include (i) 540,176 shares owned by Mr. Landman's former wife, Pier Landman,
(ii) 189,068 shares owned by trusts for the benefit of Mr. Landman's minor
children, (iii) 2,122,738 shares owned by the Frederick A. Landman
Irrevocable Trust, and (iv) 28,955,313 shares held for the benefit of the
Article VII Trust for which Mr. Landman is a trustee, with respect to all of
which Mr. Landman disclaims beneficial ownership. The shares shown to be
owned by Mr. Landman exclude an additional 3,699,079 shares of Class A
Common Stock included in the Voting Trust, as to which he disclaims
beneficial ownership.

(8) The shares of Class A Common Stock shown to be owned by Ms. Landman do not
include (i) 189,068 shares held by trusts for Ms. Landman's minor children,
for which Ms. Landman disclaims beneficial ownership, and (ii) 2,122,738
shares held by the Frederick A. Landman Irrevocable Trust, for which Ms.
Landman is the principal beneficiary and for which she claims beneficial
ownership to the extent of her pecuniary interest therein.

(9) The shares shown to be owned by Mr. Anselmo exclude (i) 28,955,313 shares
held by the Article VII Trust, for which Mr. Anselmo is a Joint Trustee and
(ii) an additional 10,826,088 shares of Class A Common Stock included in the
Voting Trust, as to which he disclaims beneficial ownership.

(10) The shares shown to be owned by Ms. Saralegui exclude (i) 28,955,313 shares
held for the benefit of the Article VII Trust for which Ms. Saralegui is a
Joint Trustee and (ii) an additional 40,085,333 shares of Class A Common
Stock included in the Voting Trust, as to which she disclaims beneficial
ownership.

(11) These shares of Class A Common Stock are held in the Voting Trust.

(12) Pier Landman is the principal life time beneficiary of the Frederick A.
Landman Irrevocable Trust and her children. Rissa Landman and Chloe
Landman, are the remaindermen.

(13) The address of Univisa Satellite Holdings, Inc. is c/o Univisa, Inc., 2121
Avenue of the Stars, Suite 3300, Los Angeles, California 90067. USHI is a
wholly owned subsidiary of Televisa.

(14) The shares of PAS Ordinary Common Stock shown to be owned by Mr. Landman,
Ms. Saralegui, Mr. Costello, Mr. Bednarek and Mr. Cuminale include the
following number of shares which are beneficially owned pursuant to the
1995 Stock Plan: 40,000 by Mr. Landman, 30,000 by Ms. Saralegui, 16,500 by
Mr. Costello and 15,000 by each of Mr. Bednarek and Mr. Cuminale.

(15) The shares shown to be owned by Mr. Costello include 756,271 shares of
Class A Common Stock held for the benefit of one of Ms. Anselmo's minor
children (the Rayce Anselmo trust), for which Mr. Costello is the co-
trustee and for which shares Mr. Costello disclaims beneficial ownership.

(16) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are joint trustees (the "Joint Trustees") under the Article VII Trust
created under the Rene Anselmo Revocable Trust dated June 10, 1994 ("the
Article VII Trust"), which was created by Rene Anselmo (the former Chairman
of the Board and Chief Executive Officer of PanAmSat), and succeeded to all
of the stock owned by Rene Anselmo on the date of his death; Mrs. Anselmo
has sole power to require or prohibit the sale of the shares owned by the
trust.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and holders of
more than 10% of any class of the Company's securities registered under the
Exchange Act ("10% Holders"), to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC") and to furnish
the Company with copies of these reports. Based on the Company's review of such
reports received by it, the Company believes that during the year ended December
31, 1996, its officers and directors and 10% Holders, with the exception of
Patrick J. Costello who

73
<PAGE>

filed his Form 5 approximately six weeks late indicating his receipt on April
22, 1996 of options to purchase 7,500 shares of Common Stock at $28.75 per share
and his purchase of 1,067 shares of Common Stock on November 6, 1996 at $30,
complied with all applicable Section 16(a) filing requirements on a timely
basis.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PanAmSat has various satellite service agreements with Televisa and
its affiliates. Pursuant to these agreements, PanAmSat received payments in the
nine months ended September 30, 1996 aggregating $6.7 million, relating to
satellite services provided by the PAS-1 and PAS-3 satellites. At September 30,
1996, approximately $195 million of PanAmSat's expected future cash payments
from the PAS-I and PAS-3 satellites were represented by long-term arrangements
with Televisa and its affiliates.

PanAmSat previously was committed to purchase several million dollars'
worth of equipment in connection with a DTH joint venture to be formed by
PanAmSat and Televisa pursuant to the Original MOU. This commitment was
canceled by PanAmSat pursuant to the Revised MOU and any costs associated with
this termination have been reimbursed by Televisa under a separate
indemnification agreement.

In November 1995, PanAmSat announced that it would serve as a
satellite service provider for the Latin America DTH service to be offered by
Globo, Televisa, News Corp. and TCI. PanAmSat signed the 1996 Letter Agreement
to provide service to the Latin America JVs on 48 transponders ultimately on
PAS-5 and PAS-6, with temporary service on PAS-3 pending the commencement of
service on PAS-6. Under the 1996 Letter Agreement, Globo, Televisa and News
Corp. have agreed to proportionally guarantee 100% of the fees for transponder
services to the Latin America JVs. These guarantee obligations may be assigned
to TCI and, with PanAmSat's prior written consent, to new equity participants in
the Latin America JVs. PanAmSat will receive minimum service fees equivalent to
PanAmSat's estimate of the cost per transponder to PanAmSat of designing,
launching, operating and insuring each satellite for transponders used by the
Latin America JVs. PanAmSat also will receive additional revenue based on
subscriber revenues of the Latin America JVs above a certain threshold, except
that the transponders that will be used by the Latin America JV operating in
Brazil will be charged on a fixed fee basis. The 1996 Letter Agreement also
contemplates that three separate full-scale transponder agreements will be
entered into for the regions of (i) Brazil, (ii) Mexico and (iii) Latin America
(not including Brazil and Mexico) and, with respect to Spanish and/or Portuguese
language programming, the United States, Canada and Puerto Rico. The Brazil
Transponder Agreement has been entered into with respect to 12 transponders on
PAS-6 for Brazil, while the 1996 Letter Agreement remains in force as to the
remaining 24 transponders on PAS-6 and 12 transponders on PAS-5 for the other
regions. Execution of full-scale transponder agreements for the other two
regions is subject to negotiation and no assurance can be given that such full-
scale transponder agreements will be executed. The 1996 Letter Agreement and
the Brazil Transponder Agreement provide for minimum payments over their
respective terms of approximately $1.3 billion, depending upon the actual useful
life of the satellites in question, their predicted performance and their in-
service dates. On cost-based transponders, PanAmSat will also be eligible to
receive revenue sharing from the Latin America JVs.

Pursuant to the Original MOU, PanAmSat and Televisa intended to
establish and operate a Ku-band digital DTH satellite broadcasting business
serving Latin America. The Original MOU was terminated and superseded by the
Revised MOU, except with respect to the indemnification obligations described
above. Pursuant to the Revised MOU and certain oral agreements in principle
with Televisa, PanAmSat has DTH Options to purchase equity in certain of the
Latin America JVs and the Spain Joint Venture. PanAmSat, Televisa and S Company
have entered into the DTH Option Purchase Agreement whereby after the Share
Repurchase, PanAmSat will sell the DTH Options to either Televisa, S Company
and/or their designees for a purchase price of $225 million. The closing of the
DTH Sale will occur substantially concurrently with receipt by S Company of the
consideration to be paid by New PanAmSat in connection with the Univisa
Contribution. PanAmSat has received the written opinion of Salomon Brothers,
PanAmSat's financial advisor, to the effect that as of September 19, 1996 and
based upon and subject to the qualifications described therein, the
consideration to be received by PanAmSat for the sale of the DTH Options
represents fair value to PanAmSat for the DTH Options from a financial point of
view.

74
<PAGE>

On September 20, 1996, PanAmSat agreed to provide Televisa Spain
transponder capacity on five Ku-band transponders on PAS-3, at least three of
which will be used to deliver television services to Spain, which may include
DTH services. The transponder service fees reflect market rates. The Spain
Transponder Agreement is unaffected by the DTH sale.

The law firm of Ivey, Barnum & O'Mara, of which James W. Cuminale,
Senior Vice President and General Counsel of PanAmSat, was a partner, provided
certain legal services to PanAmSat and received nominal fees from PanAmSat
during the fiscal year ended December 31, 1995.

The communications engineering consulting firm of Rubin, Bednarek &
Associates, of which Robert A. Bednarek, Senior Vice President, Engineering and
Operations, of PanAmSat, was a principal during 1995, provides engineering and
technical services to PanAmSat and received fees from PanAmSat of approximately
$1.4 million for the fiscal year ended December 31, 1995. Mr. Bednarek
terminated his association with Rubin, Bednarek & Associates as of December 31,
1995.

Between 1992 and March 2, 1995, PanAmSat operated as the Partnership
and prior to 1992 as a sole proprietorship and through other forms of
organization. On March 2, 1995, pursuant to an amended Exchange and
Subscription Agreement and Plan of Reorganization, PanAmSat, the Partnership and
its partners consummated the Conversion. In March 1995, in connection with the
Conversion, the Partnership granted to Lourdes Saralegui, Executive Vice
President of PanAmSat, a 43% limited partnership interest in the Partnership and
Ms. Saralegui became a limited partner of the Partnership. Concurrently with
such transaction, the Anselmo Group contributed to the Partnership a limited
partnership interest in the Partnership in like amount. Any income tax
deduction in an amount which does not exceed $50 million in value which is
available to the Partnership as a result of such transaction has been specially
allocated to the Anselmo Group.

The Company believes that each of the transactions described above was
on terms at least as favorable to PanAmSat as could be expected by third
parties.

As part of the Conversion, in connection with the merger of a company
controlled by the late Rene Anselmo into the Company, Mr. Anselmo and Frederick
A. Landman have jointly and severally indemnified the Company against
undisclosed liabilities of that company. In addition, in connection with the
Conversion, the Company assumed the phantom stock plans of that company. In
connection with the termination of the plans by the Company, Messrs. Costello
and Bednarek received cash payments aggregating approximately $964,000 during
fiscal 1995.

Prior to the Conversion, quarterly distributions of the Partnership
were required for income taxes for each year that the Partnership had taxable
income. Such distributions were calculated using the highest effective combined
U.S. federal, state, local and foreign tax rate that was imposed on any partner
which was a U.S. person with respect to such partner's allocable share of
taxable income of the Partnership for such taxable year. The Partnership
Agreement of the Partnership provided that the tax distribution for each taxable
year was to be reasonably estimated by the Managing Committee of the
Partnership. If the required tax distribution for a taxable year was greater or
less than the aggregate of the estimated amounts so distributed by the
Partnership, the Partnership was obligated to distribute the excess to the
partners, or the partners were obligated to contribute the deficiency to the
Partnership, in proportion to their percentage interests. There were no such tax
distributions for the year ended December 31, 1996.

PART IV

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

(A) 1. FINANCIAL STATEMENTS

See Index to Financial Statements on Page 41.

75
<PAGE>

2. FINANCIAL STATEMENT SCHEDULES

Financial Statement schedules are omitted because of the absence of
the conditions under which they are required, or because the information is set
forth in the financial statements or notes thereto.

(B) REPORTS ON FORM 8-K
-------------------

During the last quarter of fiscal 1996, the Company did not file any
Reports on Form 8-K with the Securities and Exchange Commission.

<TABLE>
<CAPTION>
(C) EXHIBITS
--------
<C> <S>
2.1 Exchange and Subscription Agreement and Plan of Reorganization, dated as of October 5, 1994./3/
2.2 Amendment No. 1 to Exchange and Subscription Agreement and Plan of Reorganization, dated as of February
28, 1995./7/
2.3 Agreement and Plan of Reorganization, dated as of September 20, 1996, among Hughes Communications, Inc.,
Hughes Communications Galaxy, Inc., Hughes Communications Satellite Services, Inc., Hughes Communications
Services, Inc., Hughes Communications Carrier Services, Inc., Hughes Communications Japan, Inc., the
Registrant and PanAmSat./15/
2.4 Stock Contribution and Exchange Agreement, dated September 20, 1996, among Grupo Televisa, S.A., Satellite
Company, LLC, the Registrant and Hughes Communications, Inc./15/
3.1 Amended and Restated Certification of Incorporation of the Registrant./11/
3.2 By-Laws of the Registrant./2/
4.1 Indenture (including form of note) among PanAmSat, L.P., PanAmSat Capital Corporation and First Trust
National Association, as Trustee, relating to the 9 3/4% Senior Secured Notes due 2000, dated as of August
5, 1993./3/
4.2 Indenture (including form of note) among PanAmSat, L.P., PanAmSat Capital Corporation and United States
Trust Company of New York, as Trustee, relating to the 11 3/8% Senior Subordinated Discount Notes due
2003, dated as of August 5, 1993./3/
4.3 Pledge Agreement by PanAmSat, L.P., in favor of First Trust National Association, dated as of August 5,
1993./3/
4.4 Security Agreement between First Trust National Association and PanAmSat, L.P., dated as of August 5,
1993./3/
4.5 Escrow and Disbursement Agreement among The Chase Manhattan Bank of Connecticut, N.A., First Trust
National Association, United States Trust Company of New York, PanAmSat L.P. and PanAmSat Capital
Corporation, dated as of August 5, 1993./3/
</TABLE>

76
<PAGE>

4.6 Mortgage Deed of PanAmSat, L.P. to First Trust National Association, as
Trustee dated July 27, 1993./3/

4.7 First Supplemental Indenture among PanAmSat, L.P., PanAmSat Capital
Corporation, PanAmSat Licensee Corp. and First Trust National
Association, Trustee, dated as of February 2, 1994, relating to the
9 3/4% Senior Secured Notes due 2000./3/

4.8 First Supplemental Indenture among PanAmSat, L.P., PanAmSat Capital
Corporation, PanAmSat Corporation and United States Trust Company of New
York, as Trustee, dated as of February 28, 1995 relating to the 11 3/8%
Senior Subordinated Discount Notes due 2003./3/

4.9 Second Supplemental Indenture among PanAmSat, L.P., PanAmSat Capital
Corporation, PanAmSat Corporation and First Trust National Association,
as Trustee, dated as of February 28, 1995, relating to the 9 3/4% Senior
Secured Notes due 2000./6/

4.10 Form of Indenture (including form of Exchange Debenture) between
PanAmSat Corporation and The First National Bank of Boston, as Trustee,
relating to the 12 3/4% Senior Subordinated Notes due 2005./8/

4.11 Certificate of Designation of the 12 3/4% Mandatorily Exchangeable
Senior Redeemable Preferred Stock./8/

9 Voting Trust Agreement./1/

10.1.1 Letter Agreement between Hughes Aircraft Company and PanAmSat, L.P.
dated December 22, 1992. (Portions of this exhibit have been omitted
pursuant to an order granting confidential treatment dated July 28,
1993.)/4/

10.1.2 Letter of Intent by Hughes Aircraft Company dated November 4, 1991
addressed to Alpha Lyracom Space Communications, Inc., a predecessor to
PanAmSat, L.P./4/

10.1.3 Amendment No. 2, dated January 14, 1994, to the Satellite Purchase
Contract, dated as of November 3, 1991, as amended, between Hughes
Aircraft Company and PanAmSat, L.P., a successor to Alpha Lyracom Space
Communications, Inc. (Portions of this exhibit have been omitted
pursuant to an order granting confidential treatment dated June 9,
1994.)/5/

10.1.4 Amendment No. 3 to the Satellite Purchase Contract. (Portions of this
exhibit have been omitted pursuant to an order granting confidential
treatment dated June 9, 1994.)/4/

10.1.5 Letter Amendment, dated as of September 7, 1993, to the PAS-3 and PAS-4
Satellite Purchase Contract./2/

10.1.6 Amendment No. 5, executed September 15, 1994, to the Satellite Purchase
Contract./2/

77
<PAGE>

10.1.7 Letter Agreement dated as of August 19, 1993 by and between Hughes
Aircraft Company and PanAmSat, L.P. (Portions of this exhibit have been
omitted pursuant to an order granting confidential treatment, dated
June 9, 1994.)/5/

10.1.8 Amendment, dated December 14, 1993 to the Letter Agreement. (Portions of
this exhibit have been omitted pursuant to an order granting
confidential treatment dated June 9, 1994.)/5/

10.1.9 Intentionally omitted.

10.1.10 Satellite Purchase Contract Security Agreement dated as of March 14,
1993 between Hughes Aircraft Company and PanAmSat, L.P./4/

10.1.11 Satellite Purchase Contracts Security Agreement dated as of March 22,
1994, between Hughes Aircraft Company and PanAmSat, L.P./2/

10.1.12 Satellite Purchase Contracts Security Agreement dated as of July 12,
1994, between Hughes Aircraft Company and PanAmSat, L.P./2/

10.1.13 PAS-2 Satellite Purchase Contract between Hughes Aircraft Company and
PanAmSat, L.P. entered into as of November 2, 1991. (Portions of this
exhibit have been omitted pursuant to an order granting confidential
treatment dated December 9, 1994.)/2/

10.1.14 PAS-3 and PAS-4 Satellite Purchase Contract between Hughes Aircraft
Company and PanAmSat, L.P. entered into as of January 4, 1993. (Portions
of this exhibit have been omitted pursuant to an order granting
confidential treatment dated December 9, 1994.)/2/

10.1.15 Amendment Number 1 to the PAS-3 and PAS-4 Satellite Purchase Contract
between Hughes Aircraft Company and PanAmSat, L.P. entered into August
9, 1993. (Portions of this exhibit have been omitted pursuant to an
order granting confidential treatment dated December 9, 1994.)/2/

10.2.1 Launch Services Agreement dated as of June 5, 1992, as amended, between
Arianespace S.A. and PanAmSat, L.P., a successor to Alpha Lyracom Space
Communications, Inc. (Portions of this exhibit have been omitted
pursuant to an order granting confidential treatment dated July 28,
1993.)/4/

10.2.2 Side Letter dated June 5, 1992 between Arianespace and PanAmSat, L.P./4/

10.2.3 Amendment to the Launch Services Agreement dated December 9, 1992./4/

10.2.4 Amendment No. 3, dated July 7, 1993, to the Launch Services Agreement
dated as of June 5, 1992, as amended, between Arianespace S.A. and
PanAmSat, L.P. a successor to Alpha Lyracom Space
Communications, Inc./5/

10.2.5 Amendment No. 5, dated December 16, 1993, to the Launch Services
Agreement. (Portions of this exhibit have been omitted pursuant to an
order granting confidential treatment dated June 9, 1994.)/4/

10.2.6 Side Letter No. 2, dated December 16, 1993, to the Launch Services
Agreement between Arianespace S.A. and PanAmSat, L.P. (Portions of this
exhibit have been omitted pursuant to an order granting confidential
treatment dated June 9, 1994.)/5/

78
<PAGE>

10.2.7 Intentionally omitted.

10.2.8 Amendment No. 4 to Launch Services Agreement No. 92.5.930, executed
August 13, 1993. (Portions of this exhibit have been omitted pursuant to
an order granting confidential treatment dated December 9, 1994.)/2/

10.3.1 Service Agreement, dated as of October 26, 1988 between Eurovisa B.V.
and PanAmSat, L.P., successor to Alpha Lyracom Space Communications,
Inc. (Portions of this exhibit have been omitted pursuant to an order
granting confidential treatment dated July 28, 1993.)/4/

10.3.2 Assignment dated July 31, 1989 by Eurovisa B.V. to Televisa, S.A. of its
rights in the October 26, 1988 Service Agreement between Eurovisa and
Alpha Lyracom Space Communications, Inc./4/

10.3.3 Letter dated March 16, 1990 from Televisa S.A. and Eurovisa B.V. to
PanAmSat, L.P., successor to Alpha Lyracom Space Communications, Inc.
(Portions of this exhibit have been omitted pursuant to an order
granting confidential treatment dated July 28, 1993.)/4/

10.3.4 Letter dated June 18, 1991 from PanAmSat, L.P., successor to Alpha
Lyracom Space Communications, Inc., regarding operational requirements
for television transmission via PAS-1./4/

10.3.5 Amendment to Service Agreement dated as of November 18, 1991 between
Eurovisa B.V. and PanAmSat, L.P., successor to Alpha Lyracom Space
Communications, Inc. (Portions of this exhibit have been omitted
pursuant to an order granting confidential treatment dated July 28,
1993.)/4/

10.4.1 Service Agreement dated as of February 9, 1990 between Televisa, S.A.
and PanAmSat, L.P., successor to Alpha Lyracom Space Communications,
Inc. (Portions of this exhibit have been omitted pursuant to an order
granting confidential treatment dated July 28, 1993.)/4/

10.4.2 Letter dated March 19, 1990 from Alpha Lyracom Space Communications
confirming uplink service to Televisa, S.A. (Portions of this exhibit
have been omitted pursuant to an order granting confidential treatment
dated July 28, 1993.)/4/

10.4.3 Letter dated May 18, 1990 from Televisa, S.A. to Alpha Lyracom Space
Communications, Inc., advising that Televisa will not be exercising its
option to provide uplink equipment to Alpha Lyracom./4/

10.5 Intentionally omitted.

10.6 PanAmSat Long-Term Stock Investment Plan./6/*

10.7.1 Amended and Restated Contract between PanAmSat Corporation and Space
Systems/Loral, Inc. for PanAmSat Program, dated May 2, 1996. (Portions
of this exhibit have been omitted pursuant to an order granting
confidential treatment dated July 23, 1996.)/12/

79
<PAGE>

10.7.2 Memorandum of Understanding between the Company and Space System/Loral,
Inc. effective August 1, 1995. (Portion of this Exhibit has been omitted
pursuant to an order granting confidential treatment dated September 15,
1995.)10

10.8 Form of Indemnification Agreement between the Company and its directors
and executive officers./1/*

10.9 Agreement for the launching into Geostationary Transfer Orbit of the
PanAmSat 3R Satellite by an Ariane Launch Vehicle between PanAmSat, L.P.
and Arianespace, executed on February 28, 1995. (Portions of this
exhibit have been omitted pursuant to an order granting confidential
treatment dated April 10, 1995.)/6/

10.10.1 Launch Services Agreement between Lockheed-Khrunichev-Energia
International, Inc. and PanAmSat, L.P., effective November 14, 1994.
(Portions of this exhibit have been omitted pursuant to an order
granting confidential treatment dated April 10, 1995.)/6/

10.10.2 First Amendment to Launch Services Agreement, dated March 30, 1995,
between the Company and Lockheed-Khrunichev-Energia International, Inc.
(Portions of this Exhibit have been omitted pursuant to an order
granting confidential treatment dated September 15, 1995.)/10/

10.10.3 Second Amendment to Launch Services Agreement, dated June 9, 1995.
(Portions of this Exhibit have been omitted pursuant to an order
granting confidential treatment dated September 15, 1995.)/10/

10.10.4 Amendment Number 3 to Launch Services Agreement No. 9411-002, dated
August 23, 1996, between Lockheed-Khrunichev-Energia International, Inc.
and PanAmSat. (Portions of this exhibit have been omitted pursuant to an
order granting confidential treatment dated January 6, 1997.)/15/

10.11.1 Employment and Non-Compete Agreement between PanAmSat, Inc. and
Frederick A. Landman, dated as of December 31, 1992./6/*

10.11.2 Amendment No. 1 to the Employment and Non-Compete Agreement between
PanAmSat, Inc. and Frederick A. Landman./7/*

10.11.3 Employment Agreement between the Company and Robert A. Bednarek, dated
as of June 6, 1995./9/*

10.11.4 PanAmSat Corporation Severance Pay Plan, effective as of
May 1,1996./14/*

10.11.5 Agreement entered into as of May 15, 1996, between PanAmSat Corporation
and Frederick A. Landman./14/*

10.11.6 Agreement entered into as of May 15, 1996, between PanAmSat Corporation
and Lourdes Saralegui./14/*

10.11.7 Agreement entered into as of May 15, 1996, between PanAmSat Corporation
and Robert A. Bednarek./14/*

10.11.8 Agreement entered into as of May 15, 1996, between PanAmSat Corporation
and Patrick J. Costello./14/*

80
<PAGE>

10.11.9 Agreement entered into as of May 15, 1996, between PanAmSat Corporation
and James W. Cuminale./14/*

10.11.10 Intentionally omitted.

10.11.11 Form of letter agreement regarding the termination of the interest of
certain executive officers in the Company's phantom stock plan./12/*

10.12.1 Agreement for the launching into Geostationary Transfer Orbit of the
PanAmSat 5 Satellite by an Ariane Launch Vehicle between PanAmSat, L.P.
and Arianespace, executed November 21, 1994. (Portions of this exhibit
have been omitted pursuant to an order granting confidential treatment
dated April 10, 1995.)/7/

10.12.2 Amendment No. 1 to the Agreement for the launching into Geostationary
Transfer Orbit of the PanAmSat /6/ Satellite by an Ariane Launch
Vehicle between the Company and Arianespace, executed May 1995.
(Portions of this Exhibit have been omitted pursuant to an order
granting confidential treatment dated September 15, 1995.)/10 /

10.12.3 Agreement for the Launching into Geostationary Transfer Orbit of
PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, executed
as of December 20, 1995. (Portions of this exhibit have been omitted
pursuant to an order granting confidential treatment dated July 23,
1996.)/12/

10.12.4 Side letter executed as of December 20, 1995, to the Agreement for
Launching into Geostationary Transfer Orbit of PanAmSat Satellites by
an Ariane Launch Vehicle, No. 95.5.933. (Portions of this exhibit have
been omitted pursuant to an order granting confidential treatment dated
July 23, 1996.)/12/

10.12.5 Amendment No. 1, entered into as of April 29, 1996, to the Launch
Services Agreement No. 95.5.933 between Arianespace S.A. and PanAmSat
Corporation./12/

10.12.6 Amendment No. 2 to Agreement for Launching into Geostationary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated December 31, 1996, between PanAmSat and Arianespace S.A.
(Portions of this exhibit have been omitted subject to a request for
confidential treatment submitted to the Securities and Exchange
Commission.)/+/

10.12.7 Amendment No. 2, entered into as of April 29, 1996, to the Launch
Services Agreement No. 94.5.918 between Arianespace S.A. and PanAmSat,
L.P., a predecessor to PanAmSat Corporation./12/

10.12.8 Amendment No. 3 to Agreement for the Launching into Geostationary
Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle,
No. 94.5.918, dated December 31, 1996, between PanAmSat and Arianespace
S.A. (Portions of this exhibit have been omitted subject to a request
for confidential treatment submitted to the Securities and Exchange
Commission.)/+/

81
<PAGE>

10.13.1 DTH System in Latin America Memorandum of Understanding between Grupo
Televisa, S.A. and the Company, dated as of March 27, 1995. (Portions
of this exhibit have been omitted pursuant to an order granting
confidential treatment dated April 10, 1995.)/7/

10.13.2 DTH Option Purchase Agreement, dated September 20, 1996, between
PanAmSat, Grupo Televisa, S.A. and Satellite Company, LLC./15/

10.13.3 Revised DTH System in Latin America Memorandum of Understanding, dated
as of September 20, 1996, between PanAmSat and Grupo Televisa, S.A./15/

10.14.1 Satellite Purchase Contract between Hughes Aircraft Company and
PanAmSat Corporation entered into as of March 31, 1995. (Portions of
this exhibit have been omitted pursuant to an order granting
confidential treatment dated April 10, 1995.)/8/

10.14.2 Amendment No. 1 to Satellite Purchase Contract, dated as of September
3, 1996, between Hughes Aircraft Company and PanAmSat. (Portions of
this exhibit have been omitted pursuant to an order granting
confidential treatment dated January 6, 1997.)/15/

10.16 Full-Time Transponder Service Agreement From PAS-3 (European Beam),
dated as of September 20, 1996, between PanAmSat and Televisa, S.A.
(Portions of this exhibit have been omitted pursuant to an order
granting confidential treatment dated January 6, 1997.)/15/

10.17.1 Letter Agreement among the News Corporation Limited, Globo
Participacoes, Ltd., Grupo Televisa, S.A., and PanAmSat entered into
February 29, 1996. (Portions of this exhibit have been omitted pursuant
to an order granting confidential treatment dated August 8, 1996.)/13/

10.17.2 Amendment to Letter Agreement, dated November 4, 1996, among The News
Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A.,
and PanAmSat./+/

10.18 Transponder Purchase and Sale Agreement, dated as of June 26, 1996,
between PanAmSat and Net Sat Servicos Ltda. (Portions of this exhibit
have been omitted pursuant to an order granting confidential treatment
dated February 3, 1997.)/16/

21 Subsidiaries of the Registrant./+/

24.1 Powers of Attorney./+/

82
<PAGE>

________________

+ Filed herewith.

1 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 2 to Registration Statement No. 33-84836 on December 5,
1994 and incorporated herein by reference.

2 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 1 to Registration Statement No. 33-84836 on November 18,
1994 and incorporated herein by reference.

3 Filed with the Securities and Exchange Commission as an Exhibit to
Registration Statement No. 33-84836 on October 6, 1994. and
incorporated herein by reference.

4 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 6 to Registration Statement No. 33-63284 on July 28, 1993
and incorporated herein by reference.

5 Filed with the Securities and Exchange Commission as an Exhibit to the
Company's Form 8-K dated March 24, 1994 and incorporated herein by
reference.

6 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 3 to Registration Statement No. 33-84836 on March 9, 1995
and incorporated herein by reference.

7 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 4 to Registration Statement No. 33-84836 on March 29,
1995 and incorporated herein by reference.

8 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 5 to Registration Statement No. 33-84836 on April 13,
1995 and incorporated herein by reference.

9 Filed with the Securities and Exchange Commission as an Exhibit
Registration Statement No. 33-95396 on August 4, 1995.

10 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 1 to Registration Statement No. 33-95396 on August 17,
1995.

11 Filed with the Securities and Exchange Commission as an Exhibit to
Amendment No. 3 to Registration Statement No. 33-95396 on September 18,
1995.

12 Filed with the Securities and Exchange Commission as an Exhibit to
PanAmSat's Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference.

13 Filed with the Securities and Exchange Commission as an Exhibit to
PanAmSat's Form 10-Q/A for the quarter ended March 31, 1996 and
incorporated herein by reference.

14 Filed with the Securities and Exchange Commission as an Exhibit to
PanAmSat's 10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference.

15 Filed with the Securities and Exchange Commission as an Exhibit to
PanAmSat's Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference.

16 Filed with the Securities Exchange Commission as an Exhibit to Net Sat
Servicos Ltda.'s Registration Statement No. 333-6318 on January 21,
1997 and incorporated herein by reference.

_______________

A copy of any of the exhibits included in this Annual Report on Form 10-K, other
than those as to which confidential treatment is pending or has been granted by
the Securities and Exchange Commission, upon payment of a fee to cover the
reasonable expenses of furnishing such exhibits, may be obtained by written
request to the Company, at the address set forth on the front cover, attention
General Counsel.

Exhibits indicated with a * symbol are an executive contract or compensatory
plan or arrangement filed pursuant to Item 14 of Form 10-K.

83
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, each registrant has duly caused this amended
report to be signed on its behalf by the undersigned, thereunto duly
authorized in the Town of Greenwich, State of Connecticut.

PANAMSAT CORPORATION

By: /s/ Patrick J. Costello
------------------------
Patrick J. Costello
Chief Financial Officer

PANAMSAT CAPITAL CORPORATION

By: /s/ Patrick J. Costello
------------------------
Patrick J. Costello
Chief Financial Officer

March 31 , 1997

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

<TABLE>
<CAPTION>
Name Title Date
- --------------------------- --------------------------------- ----------------
<S> <C> <C>
/s/ Frederick A. Landman* President and Chief Executive March 31 , 1997
- --------------------------- Officer and Director
Frederick A. Landman

/s/ Lourdes Saralegui* Executive Vice President and March 31, 1997
- --------------------------- Director
Lourdes Saralegui

/s/ Patrick J. Costello Chief Financial Officer March 31, 1997
- --------------------------- (Principal Financial and
Patrick J. Costello Accounting Officer) and
Director

/s/ Lawrence W. Dam* Director March 31, 1997
- --------------------------
Lawrence W. Dam

/s/ Director March 31, 1997
- --------------------------
Guillermo Canedo White

*By: /s/ Patrick J. Costello
-----------------------
(Patrick Costello,
Attorney-in-Fact)
</TABLE>

<PAGE>

EXHIBIT 10.12.6

Information contained herein, marked with [***], is being filed separately
with the Commission pursuant to a request for confidential treatment.

"This Amendment #2 to the Launch Services Agreement 95.5.933 of 20 December
1995 is entered into between:

ARIANESPACE S.A., a company organized under the laws of France and having its
principal office at Boulevard de l'Europe, 91006 EVRY, France.

and

PanAmSat Corporation a company organized under the laws of the State of
Delaware with principal offices located at One Pickwick Plaza, Greenwich,
Connecticut, U.S.A.

Reference is made to the Launch Services Agreement 95.5.933 executed between
PanAmSat Corporation and ARIANESPACE on December 20, 1995 as amended providing
inter alia for the Launch of the PanAmSat 7 Satellite constituting the Firm
Launch thereunder (said agreement being hereinafter referred to as the
"Agreement" and said Launch being hereafter referred to as the "Launch").

Reference is also made to the Launch Services Agreement 94.5.918 executed
between PanAmSat Corporation and ARIANESPACE on November 21, 1994 for the Launch
of the PanAmSat 6 Satellite (said agreement as amended being hereinafter
referred to as the "PAS 6 Agreement" and said Launch being hereafter referred to
as the "PAS 6 Launch", the said PAS 6 Agreement having been amended by Amendment
#3 to the PAS 6 Agreement executed on the date hereof hereafter PAS 6 Amendment
#3).

As previously agreed by the Parties, the Launch of PAS 6 under the PAS 6
Agreement is scheduled to take place on an Ariane 4 Launch Vehicle, and the
Launch Slot has now been set for 1 April 1977 up to and including 30 April 1997.

Subject to the execution of Side Letter #3 to the PAS 6 Agreement,

The two Parties agree to amend the terms of the Agreement as follows:
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

A) ARIANESPACE shall apply a credit of [********************************]
on the installment due on 1 January 1997 for PAS 7 under Paragraph
10.1.1.A) of the Agreement corresponding to Arianespace invoice
#96-11-596/A, which credit shall be deemed to be a payment by Customer
for all purposes under this Agreement.

B) Furthermore, no later than 1 January 1997, Customer shall pay a sum of
[********************************************************************]
to the balance due on the installment which was due on 1 December 1996
under Arianespace invoice #96.-10-557/A, this payment shall not be
subject to any late payment interest for the period between 1 December
1996 up until 1 January 1997. No additional invoice shall be submitted
for this latter payment.

If a Status Quo Ante Event should occur under the PAS 6 Amendment #3,
Paragraph I.A) of this Amendment #2 shall become ineffective and the Agreement
shall be restored to its previous provisions as they were in effect before
execution of this Amendment #2. Furthermore, upon the occurrence of a Status Quo
Ante Event, PanAmSat shall, notwithstanding the terms of Paragraph 10.3.1 of the
Agreement, pay to ARIANESPACE the [*******************************************]
object of the credit under Paragraph I.B) together with the next payment for PAS
7 due under Paragraph 10.1.1.A) of the Agreement following the Status Quo Ante
Event.

II.

Notwithstanding the provisions of Paragraph 8.1.3. of the Agreement, PanAmSat
may, by written notice received by ARIANESPACE no later than L-6 months of the
PAS 7 Satellite constituting the Firm Launch under the Agreement increase the
individual mass of said Satellite under the provisions of Paragraph 8.1.3. The
price of such increase shall be payable at the date set forth under Paragraph
10.1.3. of the Agreement.
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

III.

Customer hereby exercises the option for Optional Launch #1 under Paragraph 4.4.
of the Agreement for a yet unidentified PanAmSat Satellite which shall be
identified by Customer no later than L-18 months of the initial Launch Period
defined hereafter. Further to such exercise the Parties hereby amend the terms
of the Agreement applicable to Optional Launch #1 as follows:

a) By mutual agreement of the Parties, Paragraph 6.1.B) of the Agreement shall
be replaced by the following:

B) Optional Launch #1
The nominal Launch Period shall be: 1 September 1999 up to and including 29
February 2000 (this Launch period shall constitute the initial Launch
period of Optional Launch #1 under this Agreement). A three month Launch
Period within this six month Launch Period shall be determined at L-18
months of Optional Launch #1.

The last sentence of Paragraph 6.1. is hereby deleted.

b) By application of Paragraph 8.1.1.B) of the Agreement, the resulting
price of Optional Launch #1 shall be a Firm and Fixed price of [***************]

c) Without prejudice to the other provisions under Article 11 of the
Agreement, at Customer's request, the Launch Period or Slot of Optional Launch
#1 may be accelerated subject to the availability of a Launch Opportunity. If
Optional Launch #1 is so accelerated, the Parties shall effect all necessary
modifications to the Agreement including, without limitation, modifications
relating to the Launch Services price of this Launch i) to reflect the new
Launch Period or Slot under Paragraph 8.1.1.B) [******************************]
under Paragraph 8.1.1.D), and ii) by applying the Base Rate against the
shortened payment schedule in order to restore the net present value in all
cases when acceleration is made after the payment due at L-18 months under
Paragraph 10.1.1.B).
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

d) Solely for Optional Launch #1, the Launch Services Price of said
Launch, Paragraph 10.1.1.B) of the Agreement shall be replaced by the following:

B) For Optional Launch #1:

For the price referred to in Paragraph 8.1.1.B):

------------------------- ----------------------------------------------
Percentage of the portion of the Launch
DATE Services Price referred to in Subparagraph
8.1.1.B), of Article 8 of this Agreement
------------------------- ----------------------------------------------

[*****] [****]

(see notes next page).
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

Where:

L refers to 1 September 1999.

*the Option Credit means
For Optional Launch #1.[*****]

[*****************************************************************]

e) With respect to Optional Launch #1, if the Satellite determined to be
Launched falls outside the mass properties contemplated herein (including as may
be adjusted under Paragraph 8.1.3.), the Parties agree to negotiate in good
faith to make an equitable adjustment to this Agreement to accommodate such a
Satellite.

f) Notwithstanding the provisions of Article 18 of the Agreement, if Customer
terminates Optional Launch #1 under the provisions of Paragraph 18.2. of the
Agreement no later than 1 March 1998, the basic termination liability under
Paragraph 18.2. of the Agreement shall be limited to sums paid by Customer to
ARIANESPACE for Optional Launch #1. For the purpose of calculating C under
Article 18 of the Agreement, C shall be deemed to be 1 September 1999 at the
date of execution of this Amendment.
<PAGE>

IV.

This Amendment #2 constitutes an amendment to the Agreement within the meaning
of its Paragraph 20.6.

Executed this 31st day of December 1996

FOR ARIANESPACE FOR PANAMSAT
CORPORATION

/s/ H. Franci /s/ Frederick A. Landman
- ------------------------- ------------------------
H. Franci Frederick A. Landman

<PAGE>

EXHIBIT 10.12.8

Information contained herein, marked with [***], is being filed separately with
the Commission pursuant to a request for confidential treatment.

"This Amendment #3 to the Launch Services Agreement 94.5.918 of 21 November 1994
is entered into between:

ARIANESPACE S.A., a company organized under the laws of France and having its
principal office at Boulevard de l'Europe, 91006 EVRY, France.

and

PanAmSat Corporation a company organized under the laws of the State of Delaware
with principal offices located at One Pickwick Plaza, Greenwich, Connecticut,
U.S.A.

Reference is made to the Launch Services Agreement 94.5.918 executed between
PanAmSat Corporation and ARIANESPACE on November 21, 1994 for the Launch of the
PanAmSat 6 Satellite as amended (said agreement being hereinafter referred to as
the "Agreement" and said Launch being hereafter referred to as the "Launch").

As previously agreed by the Parties, the Launch is scheduled to take place on an
Ariane 4 Launch Vehicle, and the Launch Day had, prior to the date hereof, been
set for 17 December 1996. The Parties hereby modify the Launch Slot to extend
from 1 April 1997 up to and including 30 April 1997 (hereafter "the Reference
Launch Slot") with a target Launch Day of 16 April 1997.

The two Parties agree to amend the terms of the Agreement as follows:

A) In Paragraph 4.5. of the Agreement, the reference to Paragraph 4.3. is
hereby deleted.

B) Paragraph 4.4. shall be replaced by the following:

4.4. Should the Launch be performed on an Ariane 5 Launch Vehicle and the
Launch Mission result in

<PAGE>

4.4.1 Launch Failure, ARIANESPACE shall perform a Reflight, in
accordance with the provisions of this Agreement, provided
that no further payment by Customer to ARIANESPACE shall be
due for the provision of (i) Launch Services for the Launch of
a replacement Satellite on condition that the maximum mass of
such Satellite is equal to the mass of the initial Satellite,
and (ii) such Associated Services as are retained by Customer
as of the date of execution of this Agreement, except as
provided for in Paragraph 8.1.3. of Article 8 of this
Agreement, in case of postponement.

4.4.2 Partial Failure, ARIANESPACE shall pay to Customer an amount
as obtained by multiplying the Guarantee Amount by the Loss
Quantum if the Launch Mission has resulted in a Partial
Failure. The resulting amount will be subject to a deductible
equal to twenty percent (20%) of the Guarantee Amount provided
for the Launch, in accordance with the following formula:

(Guarantee Amount x Loss Quantum) minus deductible.

Any sum due by ARIANESPACE under this Paragraph 4.4.2. shall
be paid within the sixty (60) day period following the date
the Parties have agreed on the Launch Failure or the Partial
Failure and the application of the Loss Quantum, provided that
Customer has paid out all amounts due and payable by it under
this Agreement prior to Launch.

II.

Notwithstanding the provisions of Paragraph 8.1.1. of the Agreement, Customer
shall be entitled to increase the Satellite mass to 3420 kg. (without adaptor).
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

III.

Paragraph 10.1.1. of the Agreement shall be replaced by the following:

10.1.1.

i) for the price referred to in Paragraph 8.1.1.i)

------------------------- --------------------------------------------
Percentage of the portion of the Launch
DATE Services Price referred to in Subparagraph
8.1.1.i) of Article 8 of this Agreement
------------------------- --------------------------------------------

[*****] [*****]

[******************************************************************************]
Such computation shall be based on a year of 360 days. In addition, the
following conditions shall be applicable to this payment:

[*****]
<PAGE>

Information below, marked with [***], is being filed separately with the
Commission pursuant to a request for confidential treatment.

[******************************************************************************]

ii) To secure Customer's obligation to pay ARIANESPACE the D Payment, [*******
*******************************************************************************]

[******************************************************************************]

[*************************************************************************]

[*************************************************************************]
<PAGE>

IV.

Reference to the payment due at A in the last sentence of Paragraph 11.4 shall
be replaced by a reference to the payment due at D.

The Parties agree to accelerate the Launch to a Launch Day prior to the present
Launch Day if both the Satellite and a Launch Opportunity should become
available for an earlier Launch. With this aim, Customer will attempt to have
the Satellite delivered to the Launch Base to accommodate an earlier Launch.

VI.

The Parties agree that upon the occurrence of one of the following two events:

-if the effective duration of Customer postponements for the Launch are in
excess of thirty one (31) days beyond the Reference Launch Slot; or

-if the effective duration of ARIANESPACE postponements under Paragraph
11.3.1.1.a) or d) of the Agreement for the Launch Period, the Launch Slot
or the Launch Day for the Launch are in excess of thirty (31) days beyond
the Reference Launch Slot; being understood that postponements under
Paragraph 11.3.1.b) and c) are not applicable to the time period
considered under this Paragraph VI.

(any such occurrence being referred to as a Status Quo Ante Event for the
purposes of this Amendment #3)

Paragraphs I. to V. of this Amendment #3 shall become ineffective, and the
Agreement shall be restored to its previous provisions as they were in effect
before execution of this Amendment #3. The Parties may mutually agree, depending
on the circumstances, to extend the time periods set forth under this Paragraph
VI.
<PAGE>

VII.

This Amendment #3 constitutes an amendment to the Agreement within the meaning
of its Paragraph 20.6.

Executed this 31st day of December 1996

FOR ARIANESPACE FOR PANAMSAT CORPORATION

/s/ H. Franci /s/ Frederick A. Landman
- ------------------------------- ------------------------
H. Franci Frederick A. Landman

<PAGE>

EXHIBIT 10.17.2

November 4, 1996

The News Corporation Limited
New York, New York

Globo Comunicacoes e Participacoes
Rio de Janeiro, Brazil

Grupo Televisa, S.A.
Mexican City, Mexico

Gentlemen:

Reference is made to that certain letter agreement by and between us, dated
February 29, 1996 (the "Original Letter Agreement") and more specifically that
part of the Letter Agreement which is to be memorialized in what is referred to
therein as "PAS-3/PAS-6 Agreement" and is referred to in other documents as the
"Multi-Country Agreement."

It is understood that due to unanticipated developments, PanAmSat has the
opportunity to modify its launch agreement with Arianespace (the "Arianespace
Amendment") to extend the anticipated life of the Satellite and that all parties
hereto desire such opportunity to be taken. The purpose of this letter is to
amend the Original Letter Agreement, as of the effective date set forth below,
to set forth the effect of said anticipated extended life on the PAS-3/PAS-6
Agreement, whether it remains governed by the original Letter Agreement or by
such long form documentation as may be entered.

1. Anticipated Lifetime of PAS-6, Service Fees. It is acknowledged that
if the contemplated Arianespace Amendment is entered, based thereon, PAS-6 will
have an anticipated lifetime between twenty and twenty-one years. Such extended
life (beyond approximately 15 years) is not, however, anticipated or required to
be repeated in the case of any other satellite (replacement, Successor or
Collocated) from which capacity may be taken or ordered pursuant to the
Multi-Country Agreement. Subject to stated early termination rights, the service
term for the "Multi-Country Platform" customer on PAS-6 shall be extended
accordingly, with service fees continuing to be due and payable throughout said
period at the rates already specified.

2. Comparable Provisions to Brazil Amendment. Without limitation,
comparable provisions, applied in context, to those added by the "Brazil
Amendment" (as defined below) in new Section 5.4A and 7.9, and in the
modifications made to
<PAGE>

Sections 2.1, 5.4, 5.7, 7.3, 7.4, 7.5, 7.6, 16.1(c), first paragraph and new
clause (viii), and 16.1(f) shall apply to the PAS-3/PAS-6 Agreement.

3. Effective Date. This letter amendment shall become effective only
upon the occurrence of all of the following conditions:

(a) that certain First Amendment to Transponder Purchase and Sale
Agreement, dated as of the same date as this letter amendment, by
and between PanAmSat and NetSat Servicos Ltda. (the "Brazil
Amendment") that addresses the subject matter of this letter
amendment as it relates to that agreement is fully executed and
delivered by all parties thereto;

(b) the Arianespace Amendment is fully executed and delivered by
all parties thereto and PanAmSat so notifies Buyer the other
parties to this letter amendment; and

4. Condition to Effectiveness. This letter amendment shall cease to
be effective and the Original Letter Agreement shall return to its status quo
ante, if the Arianespace Amendment ceases to be effective as a result of a delay
in the launch of PAS-6 beyond January 31, 1997, or such later date as PanAmSat
and Arianespace may mutually agree.
<PAGE>

Please indicate your agreement to the foregoing by signing in the appropriate
space indicated below.

PANAMSAT CORPORATION

By: /s/ Lourdes Saralegui
-------------------------------
Name: Lourdes Saralegui
-----------------------------
Title: Executive Vice President
----------------------------

Accepted and Agreed to:
- ----------------------

THE NEWS CORPORATION LIMITED

By: /s/ David Evans
-------------------------------
Name: David Evans
-----------------------------
Title: Executive Vice President
----------------------------

GLOBO COMUNICACOES E PARTICIPACOES

By: /s/ Pedro Ramos De Carvalho
-------------------------------
Name: Pedro Ramos De Carvalho
-----------------------------
Title: Director
----------------------------

GRUPO TELEVISA, S.A.

By: /s/ Guillermo Canedo White
-------------------------------
Name: Guillermo Canedo White
-----------------------------
Title: Chief Financial Officer
----------------------------

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

PanAmSat Corporation

PanAmSat Carrier Services, Inc., a Delaware corporation

PanAmSat Licensee Corporation, a Delaware corporation

PanAmSat Capital Corporation, a Delaware corporation

PanAmSat Europe, Limited, a U.K. private limited company

Southern Satellite Corporation, a Connecticut corporation

PanAmSat Asia Pty Ltd., an Australia private limited company

PanAmSat Africa (Proprietary) Ltd, a South African corporation

Southern Satellite License Corporation

PAS International Employment, Inc.

<PAGE>

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frederick A. Landman, Patrick Costello and James
W. Cuminale his true and lawful attorneys-in-fact and agents, each acting alone,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to (i) approve and sign an Annual
Report on Form 10-K for PanAmSat Corporation for the year ended December 31,
1996 with the Securities and Exchange Commission and any or all amendments
thereto, and to file the same, with all exhibits thereto, and (ii) approve and
sign other documents in connection therewith, with the Securities and Exchange
Commission and to file the same, with all exhibits thereto, and granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all actions his said
attorneys-in-fact and agents or any of them or his or her substitute or
substitutes may lawfully do or cause to be done by virtue thereof.

This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.

Dated: March 31, 1997

Name
- ----

/s/ Frederick A. Landman
- -------------------------------
Frederick A. Landman

/s/ Lourdes Saralegui
- -------------------------------
Lourdes Saralegui

/s/ Patrick J. Costello
- -------------------------------
Patrick J. Costello

/s/ Lawrence W. Dam
- -------------------------------
Lawrence W. Dam

- -------------------------------
Guillermo Canedo White

/s/ James W. Cuminale
- -------------------------------
James W. Cuminale

<PAGE>
<ARTICLE> 5
<CIK> 0000906284
<NAME> PanAmSat Capital Corp.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,453,055
<SECURITIES> 379,178,538
<RECEIVABLES> 10,435,520
<ALLOWANCES> 200,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,917,030
<PP&E> 864,683,595
<DEPRECIATION> 138,091,220
<TOTAL-ASSETS> 1,615,363,359
<CURRENT-LIABILITIES> 28,675,475
<BONDS> 626,009,539
329,070,909
0
<COMMON> 1,000,079
<OTHER-SE> 496,367,617
<TOTAL-LIABILITY-AND-EQUITY> 1,615,363,359
<SALES> 0
<TOTAL-REVENUES> 246,942,586
<CGS> 0
<TOTAL-COSTS> 138,168,918
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 24,897,084
<INCOME-PRETAX> 108,151,894
<INCOME-TAX> 46,431,775
<INCOME-CONTINUING> 61,720,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,720,119
<EPS-PRIMARY> .20
<EPS-DILUTED> 0

</TABLE>