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.
| | - | -----------------------------------------------------------------------------------------------------

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|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:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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 | 

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# EXHIBIT A

LTCX FMO II CONTRACT
AND AGE-GRADED COMMISSION SCHEDULES

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# EXHIBIT B

PTADVANTAGE WEB SITE SCREEN
PRINTS

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# 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