Exhibit 10.1

October 27, 2004

Martha Warren, PresidentThe
LTC Exchange, Ltd.55
Madison Avenue, Suite 120Morristown,
New Jersey 07960

Dear Ms. Warren:

This letter will confirm, in writing, the terms of our agreement and mutual
understanding regarding the exclusive marketing arrangement between Penn Treaty
Network America Insurance Company for itself and on behalf of its affiliated
insurance companies (hereinafter collectively referred to as “PTNA”) and The LTC
Exchange, Ltd. (“LTCX”), a Colorado corporation. This Letter of Agreement
(“LOA”) is intended to summarize the principal terms and conditions upon which
PTNA and LTCX have agreed thus far, and shall serve as the basis for further
discussion as PTNA and LTCX work toward a more definitive agreement. If the
parties fail to execute a definitive agreement within sixty (60) days of the
date of this LOA, the LOA shall serve as the definitive agreement. The principal
terms and conditions of this LOA are as follows:

  1. Relationship between LOA and FMOII. This LOA shall amend and supplement the
terms of the Field Marketing Organization II contract and commission schedules
as entered into by the parties on this date (“FMOII”). (A copy of the FMOII
contract and age-graded commission schedules pursuant to the Master FMO
hierarchy structure is attached hereto as Exhibit A.) The FMOII shall replace
the previous FMO contract entered into by the parties, and any compensation
payable to LTCX pursuant to the FMOII shall not be retroactive and shall apply
only to new business submitted and issued after the effective date of the FMOII.
In the event of any inconsistency between this LOA and the FMOII, the LOA shall
control. In all other respects, the FMOII shall be fully binding.

  2. Description of Marketing Arrangement. The Marketing Arrangement shall
consist of the following:

  a. Ramp Up Period. The ramp-up period shall commence on the date of execution
of this LOA and continue for a period of one hundred twenty (120) days after the
LOA execution date (“Ramp Up Period”).

  i. During the Ramp Up Period, LTCX shall not have any minimum production
requirements for newly
issued long-term care insurance (“LTCi”) business, and all of the following must
be accomplished:

  o It is understood and agreed that the PTAdvantage web site has been reviewed
and pre-approved in writing by PTNA. It is further understood and agreed to by
LTCX that any and all changes to the web site must be reviewed and pre-approved
in writing by PTNA; and

  o It is understood and agreed that all FMO recruiting advertisements have been
reviewed and pre-approved in writing by PTNA. It is further understood and
agreed to by LTCX that any new FMO recruiting advertisements, and any and all
changes to any previously approved FMO recruiting advertisements, must be
reviewed and pre-approved in writing by PTNA; and

  o LTCX must have successfully recruited and appointed twenty of its
established FMO agencies with PTNA.

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

ii.         At the expiration of said Ramp Up Period, PTNA and LTCX shall meet
to review LTCX’s compliance with the requirements set forth in this Paragraph
2(a). iii. During the Ramp Up Period, LTCX shall be compensated as set forth in
paragraphs 3(b) below.

  b. Exclusive Relationship. During the Ramp Up Period, and for the term of
three (3) years commencing on the day after the Ramp Up Period terminates,
subject to the validation conditions set forth herein (the “Term”), LTCX will
serve as PTNA’s Master FMO. As such, LTCX shall have the exclusive right to
recruit Field Marketing Organizations (“FMO’s”) nationwide to become contracted
and appointed with PTNA. LTCX shall also have the exclusive right (subject to
the Marketing Arrangement Exceptions in Section 2(f) below) to recruit insurance
agents and agencies with a first-year commission structure of 80% and above
(“Agents/Agencies”) nationwide to become contracted and appointed with PTNA. In
accordance with the terms of the FMOII, LTCX shall be responsible for training
and supervising all of the FMO’s and Agents/Agencies that it recruits.

  o During the Ramp Up Period and the Term, PTNA agrees to direct all inquiries
from prospective FMO’s and Agents/Agencies to LTCX. LTCX agrees that it will
refer all inquiries from prospective Agents/Agencies to an appointed FMO in
LTCX’s hierarchy that is located in close proximity to the prospective Agent.

  c. Boot Camps. During the Ramp Up Period and the Term, LTCX may conduct FMO
training sessions at PTNA’s home office located in Allentown, Pennsylvania
(“Boot Camps”). Boot Camps shall be conducted subject to the following terms and
conditions:

  o Each Boot Camp session will last two (2) days;

  o A minimum of fifteen (15) FMO’s and a maximum of thirty (30) FMO’s will
attend each Boot Camp session;

  o Each Boot Camp session will be conducted by qualified and experienced
long-term care insurance professionals furnished by LTCX; and

  o Each Boot Camp session will include, but shall not be limited to, training
regarding Insurance IQ, PTAdvantage, LTCX’s marketing protocol, and PTNA’s
products and underwriting.

  d. Marketing Protocol. During the Ramp Up Period and the Term, LTCX shall
utilize www.ptadvantage.info, a web-based marketing protocol, or a substantially
similar web-based marketing protocol. (A copy of all screens of the PTAdvantage
web site is attached hereto as Exhibit B.) The marketing protocol shall be
subject to and require the prior written approval of both parties, which
approval shall not be unreasonably withheld. The parties agree that the
marketing protocol shall utilize, among other things, LTCX’s proprietary
programs such as Sales Acceleration System (a fully automated agent follow-up
protocol), LTCi Policy Tracker (a system that facilitates policy issue and
commission payments through application categorization), and the Underwriting
Questionnaire. The parties understand and agree that only LTCX, or FMO’s and
Agents/Agencies appointed through LTCX’s Master FMO hierarchy, shall be
permitted to utilize the PTAdvantage protocol and the Underwriting
Questionnaire, or any similar programs.

  e. Case Protection. It is understood and agreed that all prospective FMO’s and
Agents/Agencies who receive quotes from PTNA through the Underwriting
Questionnaire shall receive 90-day “case protection” for that particular
applicant from the date of submission. LTCX shall maintain an automated system,
and shall, at no expense to PTNA, provide PTNA access to such system, in order
to track such protected cases

  f. Marketing Arrangement Exceptions. It is specifically understood and agreed
to by LTCX that the following individuals and business entities are excepted
from this marketing arrangement (i.e. neither these individuals, business
entities, nor their respective hierarchies will be placed under LTCX’s
hierarchy, nor will LTCX receive commissions thereon). The Marketing arrangement
exceptions are as follows:

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

  o All FMO’s appointed with PTNA as of the date of execution of this LOA. The
parties intend that the marketing arrangement that is the subject of this LOA
shall be independent of PTNA’s current FMO sales’ recruiting and marketing
model.

  o All FMO’s negotiating with PTNA as of the date of execution of this LOA who
are appointed with PTNA within sixty (60) days from said date. (A list of those
FMO’s currently negotiating with PTNA is attached hereto as Exhibit C.)

  o All manufacturers, vendors and/or insurers with which PTNA has an existing
strategic alliance, or with which PTNA may enter into a strategic alliance at
any time in the future.

  g. Non-Competition. During the Ramp Up Period and the Term, and for a period
of two and one half years after the termination of this LOA, PTNA agrees that it
will not develop or utilize any marketing protocol that is substantially similar
to the PTAdvantage program, except for pursuant to the terms of the LOA.
Additionally, during the Ramp Up Period and the Term and for a period of two and
one half years after the termination of this LOA, LTCX agrees that it shall not
permit, nor enter into any agreements which permit any other LTCi carriers to
utilize PTAdvantage (or any other marketing protocol that is substantially
similar to the PTAdvantage program) for purposes of recruiting sales agents to
market LTCi business.

  3. Compensation.

  a. Overall Structure. Payment of compensation to LTCX as a Master FMO as
described herein shall be as follows:

  o LTCX’s total compensation hereunder will include payment of commissions, as
well as compensation for sales of policies and for PTNA’s use of LTCX’s
marketing services as described more fully in Paragraph 2. Such compensation is
payable based on premiums accepted or received by PTNA for LTCi policies issued
pursuant to applications submitted by LTCX, and FMO’s and Agents/Agencies
appointed through LTCX’s hierarchy. Compensation shall be adjusted on a monthly
basis to reflect policies that have been refunded or cancelled.

  o It is understood and agree that all restricted shares of PTA Common Stock
shall bear the following legend:

  THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND ARE “RESTRICTED
SECURITIES” AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY
NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (I) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT; (II) IN
COMPLIANCE WITH RULE 144; OR (III) AFTER RECEIPT OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PENN TREATY AMERICAN CORPORATION THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.

  b. Ramp Up Period. During the Ramp Up Period, LTCX’s total compensation as a
Master FMO shall be as set forth below:

  o For New Business. One hundred twenty-seven and one-half percent (127.5%) of
LTCX’s total monthly new business premium, which will be paid in two parts as
follows:

o One hundred seven and one half percent (107.5%) will be paid by check on a
monthly basis; and o Twenty percent (20%) will be paid in restricted shares of
common stock of PTNA’s parent company, Penn

  Treaty American Corporation (“PTA”) (NYSE: PTA), which will be issued to LTCX
within ten (10) business days after the close of each month. The number of
shares issued will be based on a per share value equal to the average of the
reported closing prices of such PTA stock on the NYSE during the month in which
the applicable LTCi business was issued.

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

  o For Renewal Business. Ten percent (10%) of LTCX’s total monthly renewal
business premium shall be paid to LTCX by check on a monthly basis.

c.     Term. During the Term, LTCX’s total compensation as a Master FMO shall be
as set forth below: o For New Business. Up to one hundred twenty-seven and
one-half percent (127.5%) of LTCX’s total monthly new

        business premium, which will be paid in two parts as follows:

o One hundred seven and one half percent (107.5%) will be paid by check on a
monthly basis; and o Ten percent (10%) will be paid in restricted shares of PTA
common stock, which will be issued to LTCX

  within ten (10) business days after the close of each month. The number of
shares issued will be based on a per share value equal to the average of the
reported closing prices of such PTA stock on the NYSE during the month in which
the applicable LTCi business was issued.

  o For Renewal Business. Ten percent (10%) of LTCX’s total monthly renewal
business premium shall be paid to LTCX by check on a monthly basis.

  o Additional Shares of PTA Common Stock. During the Term, LTCX shall be
eligible to receive additional restricted shares of PTA Common Stock as follows,
subject to the conditions set forth below:

  o If LTCX produces $6,000,000 (six million dollars) or more of issued and
annualized new business LTCi premium during the first six (6) months of the
Terms or any subsequent, consecutive six (6) month period of the Term, LTCX will
receive ten percent (10%) of the total aggregate new business premium produced
by LTCX during said six (6) month period in additional restricted shares of PTA
common stock. It is understood and agreed that each respective six (6) month
period shall stand on its own and shall not overlap or be combined with any
other six (6) month period. The additional shares of PTA stock will be issued to
LTCX approximately ten (10) days after the expiration of the applicable six (6)
month period. The number of shares issued will be based on a per share value
equal to the average reported closing prices of such PTA stock on the NYSE
during the six (6) month period in which the applicable LTCi business was
issued.

  o If, at the expiration of the first six (6) month period described above, and
at the expiration of each of the remaining six (6) month periods of the Term,
LTCX has produced less than $6,000,000 (six million dollars) of issued and
annualized new business LTCi premium during the applicable six (6) month period,
LTCX shall receive a prorated portion of the additional shares described above.
[i.e. if LTCX has produced $3,000,000 (three million dollars) of issued and
annualized new business LTCi premium at the end of the applicable six (6) month
period, LTCX shall receive additional shares of PTA stock based on the value of
five percent (5%) of the total aggregate new business premium produced by LTCX
during said six (6) month period.] It is understood and agreed that each
respective six (6) month period shall stand on its own and shall not overlap or
be combined with any other six (6) month period.

    4.        Validation Production Requirements and Exclusive Relationship.

  a. LTCX acknowledges and agrees that it must meet each of the production
requirements set forth below (“Validation Production Requirement”) in order for
LTCX to retain its exclusive Master FMO status with PTNA:

o Ramp Up Period Plus First Year of Term:

  LTCX shall achieve a Validation Production Requirement of $5,000,000 (five
million dollars) of issued and annualized new business LTCi premium during the
sixteen month period comprised of the Ramp Up Period and the first year of the
Term (“First 16 Months; and

o Second Year of Term:

  LTCX shall achieve a Validation Production Requirement of $7,500,000 (seven
and one half million dollars) of issued and annualized new business LTCi premium
during the second year of the Term; and

o Third Year of Term:

  LTCX shall achieve a Validation Production Requirement of $9,375,000 (nine
million, three hundred seventy-five thousand dollars) of issued and annualized
new business LTCi premium during the third year of the Term.

  b. On a monthly basis, the parties shall meet to review the following:

  i. Production, quality of Agents/Agencies recruited, quality of service
rendered by LTCX and its recruited FMO’s and Agents/Agencies, quality of
business submitted by LTCX and its recruited FMO’s and Agents/Agencies,
persistency/lapsation rates, status of advertising, recruitment status, boot
camps (successes, attendance, issues, etc.).

  ii. Persistency/Lapsation Rates. LTCX agrees to use its best efforts to
conserve policies and to help maintain reasonable persistency of all business
produced through LTCX.

  c. If LTCX fails to meet the Validation Production Requirements as set forth
in Section 4(a), PTNA may, within thirty (30) days after any such failure and in
its sole discretion, terminate LTCX’s exclusive Master FMO appointment. In such
case, the parties agree that the compensation structure set forth in this LOA
shall cease to apply and LTCX shall be paid in accordance with LTCX’s FMOII
contract and age-graded commission schedules (Exhibit A) for all new business
submitted and issued after the termination date, except that LTCX’s renewal
commission shall be 15.5%, and LTCX’s first year commission shall be 103%. (A
copy of such modified commission schedule is attached hereto as Exhibit E.)

d.         To the extent that any action taken by PTNA or any regulator, or any
other action reasonably outside the control of LTCX, reasonably impairs LTCX’s
ability to meet the Validation Production Requirements, LTCX shall not be
required to meet the Validation Production Requirements and shall continue as
the exclusive Master FMO.

e.         In the event of termination of the exclusive Master FMO appointment,
all FMO’s and Agents/Agencies appointed under this LOA shall remain under LTCX’s
hierarchy for commission purposes. Any change in compensation to LTCX shall not
be retroactive and shall apply only to new business submitted and issued after
the termination date.

  5. Marketing Expenses. LTCX shall be responsible for all expenses, fees and
taxes incurred in the conduct of its business performed on behalf of PTNA except
that PTNA shall be responsible for providing adequate facilities for Boot Camps
and for paying for reasonable food and lodging expenses for FMO’s and
Agents/Agencies who attend Boot Camps. It is the understanding of the parties
that FMO’s and Agents/Agencies attending Boot Camp shall be responsible for
their own travel expenses to and from Boot Camp.

      6. Company Name and Other Property.

  a. All names, logos, symbols, trademarks, trade names and service marks of
PTNA and LTCX, whether presently existing or hereafter established, are the sole
property of the respective parties. Each party retains the right to the use and
control of any such names, logos, symbols, trademarks, trade names and service
marks. Each party also reserves any rights it has to control and use the names,
logos, symbols, trademarks, trade names or service marks of its affiliates.
Except as otherwise expressly provided herein, neither party shall use any of
the other party’s names, logos, symbols, trademarks, trade names, or service
marks, or such names, logos, symbols, trademarks, trade names or service marks
as such other party has rights to, for any reason or in any manner whatsoever,
including but not limited to, advertising or promotional materials, or
otherwise, without the prior written consent of the other party. Any use by a
party, without the prior written approval of the other party, of the names,
logos, symbols, trademarks, trade names or service marks of such other party or
of such names, logos, symbols, trademarks, trade names or service marks as such
other party has rights to, shall cease immediately upon the earlier of written
notice by such other party or termination of this LOA. Each party reserves the
right to withdraw at any time any approval previously given to the other party
to use its names, logos, symbols, trademarks, trade names, or service marks, or
such names, logos, symbols, trademarks, trade names or service marks as it has
rights to.

  b. Upon termination of this LOA, it is expressly agreed that PTNA shall be
permitted to continue to utilize the name PTAdvantage in its operations, so long
as LTCX continues to receive any compensation due to LTCX from PTNA pursuant to
the terms of this LOA and the FMOII contract.

  7. Termination. The exclusive marketing arrangement established hereunder
shall automatically terminate on the earlier of the end of the Term and the date
on which LTCX’s FMOII Contract with PTNA is terminated, or as otherwise set
forth in this LOA.

  8. Announcements. Subject to the requirements of law, any news releases or
other announcements by any party pertaining to this letter shall be approved in
writing by all parties prior to release. The parties shall keep the existence of
this letter and its contents confidential, except as may be necessary to comply
with applicable law. Notwithstanding the foregoing, the parties understand that
PTNA’s parent company, PTAC, is a publicly traded company and, as such, PTAC
and/or its affiliates may be required to disclose this transaction and the terms
thereof by issuance of a press release or a filing with the SEC. To the extent
possible, PTAC will give LTCX prior notice of, and an opportunity to review and
approve such disclosure.

  9. Promotional Materials. Neither party shall use any of the other party’s
materials, advertising, press releases, publicity matters or other promotional
materials without the prior written approval of an officer of the other party.

  10. General Provisions. This LOA and the FMOII represent the entire
understanding between the parties with respect to the subject matter hereof and
except as otherwise set forth herein, supersede all prior communications,
agreements and understandings relating thereto, whether oral or written. The
terms and conditions of this LOA may not be modified, amended, or waived, except
by a written instrument duly executed by the president of each party, which
states that it amends this LOA. In addition, this LOA may not be assigned by
either party without the prior written consent of the president of the other,
which consent shall not be unreasonably withheld. Any attempted assignment in
violation of the foregoing shall be null and void. This LOA shall be governed in
all respects by the domestic laws of the Commonwealth of Pennsylvania without
giving effect to principles of conflicts of law. The parties agree that venue
shall be proper in Lehigh County, Pennsylvania. If any provision contained in
this LOA is deemed unlawful or unenforceable, such provision (or the relevant
portion thereof) shall be stricken from this LOA to the extent of such
illegality or unenforceability, and the remainder of such provision (if
applicable) and the other remaining provisions of this LOA shall remain and
continue in full force and effect. Failure to enforce any provision of this LOA
shall not constitute nor be construed to be a waiver of any term hereof. A
waiver by either party of any covenant to be performed or of any breach shall
not constitute nor be construed to be a waiver of any other covenant or any
subsequent breach. All rights and remedies provided for in this LOA shall be
cumulative and in addition to and not in lieu of any other rights or remedies
available to either party at law, in equity or otherwise.

  11. Mediation. In the event that any material controversy or dispute arises
between the parties with respect to the enforcement or interpretation of this
LOA, or with respect to any of the transactions contemplated hereby, LTCX and
PTNA shall use their best efforts and due diligence to resolve the matter by
negotiation. LTCX and PTNA shall refer any matter that cannot be so resolved to
nonbinding mediation before a disinterested third party mediator selected
jointly by the parties. At any time during the course of negotiations and/or
mediation (including at inception of the dispute), either party may by written
notice to the other impose a deadline for conclusion of such mediation
proceedings which shall be no less than thirty (30) days following the date of
the notice (“StandStill Period”). Upon expiration of the StandStill Period, the
parties shall have full resort to all available legal and equitable procedures
and remedies for resolution of matters at issue. Notwithstanding the foregoing,
if either party is confronted with actual or threatened loss or injury for which
there is or may be no adequate remedy at law, nothing in this Paragraph 11 shall
operate or be construed to prohibit immediate application to a court of
competent jurisdiction for such relief as may be available in equity. This
Paragraph 11 shall not operate or be construed to prohibit or delay the exercise
of a party’s right to terminate this LOA under Paragraph 7. The exclusive
jurisdiction for any action arising under this LOA shall be the Courts of Lehigh
County, Commonwealth of Pennsylvania.

  12. Binding Agreement. This LOA shall be binding upon and inure to the benefit
of each party hereto and their respective successors and assigns.

  13. Counterparts. This LOA may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.

  14. Facsimile Signatures. It is agreed that signatures may be transmitted by
facsimile.

  15. Headings. Captions contained in this LOA are inserted only as a matter of
convenience and in no way define, limit or extend the scope or intent of this
LOA or any provision thereof. Similarly, the lack of a caption in no way
defines, limits or extends the scope or intent of this LOA of any provision
hereof.

If the terms and conditions of this Letter of Agreement are acceptable to you,
and you are in agreement with said terms and conditions and intend to be legally
bound thereby, please indicate your approval by signing the enclosed copy of
this Letter of Agreement where indicated and return it to the undersigned by
5:00 p.m. on October 27, 2004. We are excited about the opportunities presented
by our relationship with LTCX and we look forward to working closely with you
toward a mutually successful business relationship.

By: PENN TREATY NETWORK AMERICA
         INSURANCE COMPANY

/s /William W. Hunt__________________________
Name: William W. Hunt       Date: 10/28/04
Title: Pres. and CEO

Intending to be legally bound hereby, I state and represent that I have
authority to enter into this Agreement on behalf of the corporation or
partnership named herein. I further certify that each of the shareholders or
partners personally and fully guarantee, in all respects, performance with
respect to all aspects of this Agreement.

By: THE LTC EXCHANGE, LTD.

/s/ Martha Warren _____________________________
Name: Martha Warren Date: 10/27/04
Title: President

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

EXHIBIT A

LTCX FMO II CONTRACT AND AGE-GRADED COMMISSION SCHEDULES

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

EXHIBIT B

PTADVANTAGE WEB SITE SCREEN PRINTS

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

EXHIBIT C

FMO’S NEGOTIATING WITH PTNA

1.     John Shock (IA) 2. Irwin Cohen (IL) 3. Richard Garrett (AL) 4. Mike
Stevens (TX) 5. LTCNetwork

EXHIBIT D

MODIFIED COMMISSION SCHEDULE-PARAGRAPH 4