**Exhibit 10.1**

 

**Execution Copy**

 

**CONSULTING AGREEMENT**

 

**THIS CONSULTING AGREEMENT**(this “Agreement”), made and entered into as of the 28th day ofApril, 2003 (the “Effective Date”) by and between Penn Treaty AmericanCorporation, a Pennsylvania Corporation (the “Company”) and Irving Levit(“Executive”).

 

**WHEREAS**, theExecutive has served as the Chief Executive Officer and Chairman of the Boardof Directors of the Company and its subsidiaries;

 

**WHEREAS**, theExecutive desires to retire from such positions; and

 

**WHEREAS**, inconnection with that retirement and in recognition of the Executive’ssubstantial contributions to the Company, the Company has agreed to providecertain retirement benefits to Executive; and

 

**WHEREAS**, the Companywould like to engage Executive as a consultant so as to retain the benefit ofthe extensive knowledge and experience of Executive.

 

**NOW THEREFORE**, inconsideration of the promises and mutual covenants contained herein, and eachintending to be legally bound hereby, the parties agree as follows:

 

# 1.                                       Resignationof Employment.  Executive (a) herebyresigns as an employee, officer and director of any subsidiary of the Company,effective as of the Effective Date, and (b) will resign as the Company’sChairman, Chief Executive Officer and as an employee of the Company, effectiveas of the close of the Company’s 2003 annual meeting (the “Resignation Date”).

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# 2.                                       BoardService.  Executive will continue toserve as a member of the Company’s Board of Directors (a “Director”), will bedesignated as the “Founding Chairman” and will be entitled to retain that titlefor the remainder of his life.  Inconsideration for his continued service as a Director following the ResignationDate, Executive will be entitled to receive the same compensation that othernon-employee members of the Board receive for their service as Directors (andfor their service as a member of any committee of the Board of Directors onwhich Executive may serve from time to time). For so long as Executive desires to stand for re-election to theCompany’s Board of Directors, the Company will utilize its best efforts to takeor cause to be taken all actions necessary or desirable to nominate Executivefor election as a Director and to recommend Executive’s candidacy for electionas a Director to the Company’s shareholders.

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# 3.                                       Consulting.

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## (a)                                  Engagement.  Subject to the terms of this paragraph, theCompany hereby engages Executive as a consultant to perform the services setforth on Exhibit A hereto at the request of the Company’s Board ofDirectors;*provided, however,*that in performingsuch services, Executive will not be requested or expected to expand the workschedule adopted by him over the last two years.  Subject to the terms of paragraphs 4 and 6(b) below, the durationof this consulting engagement will be the two (2) year period beginning on theResignation Date.

 

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## Executive hereby accepts such engagement,agrees to perform faithfully, diligently and to the best of his ability andagrees to cooperate fully with the Company’s Board of Directors, officers andemployees in the course of such engagement. For the full duration of Executive’s consulting engagement, the Companywill provide the Executive with administrative support reasonably necessary tofulfill his responsibilities and with continued use of his existing office atthe Company’s headquarters.

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## (b)                                 Compensation.  The Company agrees to pay Executive, andExecutive agrees to accept from the Company, in full payment for Executive’sservices as a consultant hereunder, an annual retainer of $100,000, payable inequal month installments beginning on the Resignation Date and continuing untilthe end of the consulting engagement.

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## (c)                                  Expenses.  The Company agrees to reimburse Executivefor his out-of-pocket expenses as may be determined and approved by theExecutive Committee to be reasonablynecessary in connection with services rendered by Executive pursuant to thisparagraph.

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# 4.                                       Termination.

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## (a)                                  ByDeath. If Executive dies, his consulting engagement hereunder shall terminatewithout notice on the date of his death.

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## (b)                                 ByExecutive. The Executive may terminate his consulting engagement uponthirty (30) days advance written notice to the Company.

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## (c)                                  Effectof Termination.  If Executive’sconsulting engagement terminates, the Company shall have no further obligationunder paragraph 3 except to pay Executive an amount equal to the portion of hiscompensation and out-of-pocket business expenses as described in paragraph 3 asmay be accrued and unpaid on the date of such termination; *provided,however,*that except as otherwise provided in this paragraph 4,Executive’s consulting engagement may not be terminated for any reason.

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# 5.                                       RetirementBenefits.

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## (a)                                  MonthlyPayments.  The Company will pay toExecutive (and, if Executive pre-deceases his spouse, to his spouse) aretirement benefit of $100,000 per year. Such retirement benefit will be payable in monthly installments of$8,333 each on the first day of each calendar month beginning on or after theResignation Date.  Such monthly paymentswill continue until the later of the death of Executive or his spouse.

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## (b)                                 Healthand Welfare Benefits.  Until thelater of the death of Executive or the death of his spouse, the Company willcontinue to provide Executive and his spouse with benefits under the Company’shealth and other welfare benefit plans substantially identical to thoseprovided from time to time to the Company’s then current executives and theirspouses.  Life insurance benefits providedunder the Company’s plans, if calculated as a function of an employee’scompensation, will be provided under this paragraph based on Executive’s rateof compensation in effect on the Effective Date.

 

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## (c)                                  Natureof Arrangement.  The paymentsdescribed in paragraph 5(a) are an unfunded arrangement and will be paid fromthe general assets of the Company.  Suchpayments will be subject to tax withholding in accordance with applicablefederal, state and local laws and will supplement (not supersede, modify oroffset) any other benefits otherwise due to Executive.

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## (d)                                 NoAlienation of Benefits.  Executivewill not assign, transfer or pledge the amounts payable under paragraph5(a).  No part of such amounts will,prior to actual payment, be subject to any claims of creditors and, inparticular, they will not be subject to attachment, garnishment, seizure,offset or sequestration by any creditor.

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# 6.                                       Effectof Change of Control.

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## (a)                                  Paymentof Retirement Benefit.  Immediatelyupon the occurrence of a Change of Control (as defined in below), the Companywill make a single sum cash payment to Executive equal to the actuarial presentvalue of the remaining payments described in paragraph 5(a).  Such payment will constitute a completedischarge of the Company’s obligations under paragraph 5(a) of thisAgreement.  For this purpose (i)actuarial present value will be determined using mortality factors and interestrates that would then be applicable to calculate lump sum present values underSection 417(e) of the Internal Revenue Code, and (ii) the time for determiningthe interest rate will be the calendar month preceding the Change ofControl.  As used herein, “Change ofControl” will have the same meaning as defined in that certain Change ofControl Employment Agreement between Executive and the Company dated as ofFebruary 13, 2001 (the “CoC Agreement”).

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## (b)                                 Terminationof Consulting Engagement.  If aChange of Control occurs during Executive’s engagement as a consultanthereunder, such consulting engagement will then terminate automatically.  Upon such termination, Executive willreceive an immediate lump sum cash payment equal to the amount that would havebeen payable to him under Section 6.04(a)(i) of the CoC Agreement if: (i) hehad been employed by the Company at the time of the Change of Control at a basesalary equal to the amount set forth in paragraph 3(b) hereof, and (ii) hisremaining period of employment had been determined under Section 2.01 of theCoC Agreement.

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# 7.                                       Cooperationand Participation in Litigation. During Executive’s consulting engagement hereunder and following thetermination of that engagement, Executive will cooperate with reasonablerequests of the Company to participate in the preparation for, response to,prosecution of and/or defense of any pending, actual or threatened litigationinvolving the Company. The Company will reimburse Executive for all reasonableexpenses incurred by Executive as a result of such cooperation, will providereasonable advance notice of any need for Executive’s assistance under thisparagraph and will exercise its best efforts to prevent Executive’s obligationsunder this paragraph from interfering with his other personal and professionalobligations.

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# 8.                                       Indemnification.  The Company will indemnify and defendExecutive for acts performed (or omissions made) in his capacity as a director,officer, consultant or employee of the Company and any of its subsidiaries(without regard to whether such acts or omissions

 

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# occurred before or after the ResignationDate) to the same extent as provided to active directors and officers and willmaintain insurance to fund this indemnity for so long as directors’ andofficers’ insurance is maintained for active directors or officers of theCompany.

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# 9.                                       Assignment.  Neither the Company nor Executive shall havethe right to assign this Agreement or any obligation hereunder without thewritten consent of the other, except that in connection with the merger, consolidationor liquidation of the Company or in connection with the sale or transfer of allor substantially all of the assets of the Company, this Agreement will inure tothe benefit of and be binding on the successor to the Company without theconsent of Executive, as though such successor had been named as a party to andhad actually executed this Agreement.

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# 10.                                 Indulgences.  The failure of the Company at any time ortimes to enforce its rights under this Agreement strictly in accordance withthe same shall not be construed as having created a custom in any way or mannercontrary to the specific provisions of this Agreement or as having in any wayor manner modified or waived the same.

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# 11.                                 ParagraphHeadings.  The paragraph headings inthis Agreement are for convenience only. They form no part of this Agreementand shall not affect its interpretation.

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# 12.                                 Notices.  Any notice required or permitted to be givenby this Agreement shall be in writing and shall be sufficiently given to theparties if hand delivered or sent by overnight delivery, facsimile (withconfirmation of receipt) or United States certified or registered mail, returnreceipt requested, postage prepaid, addressed to the respective parties at thefollowing addresses or at such other addresses as may from time to time bedesignated in writing by the parties:

 
| If to the Executive:       |   | If to the Company:                         |
|----------------------------|--------|--------------------------------------------|
|                       |   |                                       |
| Mr. Irving Levit           |   | Penn Treaty American Corporation           |
| 36 White Pine Road         |   | 3440 Lehigh Street                         |
| Columbus, New Jersey 08022 |   | Allentown, PA 18103                        |
| AND                        |   | Attn: Chief Executive Officer              |
| 2565 Gracie Lone           |   |                                       |
| Macungie, PA 18062         |   |                                       |
|                       |   |                                       |
| With a copy to:            |   | With a copy to:                            |
|                       |   |                                       |
| Barry M. Abelson, Esquire  |   | Justin P. Klein, Esquire                   |
| Pepper Hamilton, LLP       |   | Ballard Spahr Andrews & Ingersoll, LLP |
| 3000 Two Logan Square      |   | 1735 Market Street, 51st Floor             |
| Philadelphia, PA 19103     |   | Philadelphia, PA 19103                     |

 

# 13.                                 EntireAgreement.  This Agreement setsforth the entire agreement between the parties with respect to the matterscovered herein, and supersedes all other

 

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# agreements regarding the matters coveredherein. No waiver or amendment to this Agreement shall be effective unlessreduced to writing and executed by the parties hereto.

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# 14.                                 LegalFees.

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## (a)                                  Preparationof Agreement.  The Company willreimburse Executive for reasonable legal fees incurred in connection with thecessation of his employment and the negotiation and documentation of thisAgreement.

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## (b)                                 Enforcementof Agreement.  The Company willreimburse Executive for all reasonable legal fees and costs incurred by him inthe course of enforcing his rights under this Agreement, plus interest at theprime rate plus one percent, if Executive is awarded any relief whatsoever(legal, equitable or otherwise), if the Company voluntarily capitulates to anyclaim (whether before or after any formal action is commenced) or if theCompany otherwise enters into a settlement of such matter.

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# 15.                                 ControllingLaw.  This Agreement shall beexecuted in the Commonwealth of Pennsylvania and shall be construed and appliedin accordance with the laws of Pennsylvania, without giving effect to theprinciples of conflicts of law under Pennsylvania law.

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# 16.                                 Understandingof Executive.  Executive agrees andacknowledges that he has read this Agreement in its entirety and that heunderstands it and enters into it voluntarily.

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# IN WITNESSWHEREOF, this Agreement has been duly executed by and on behalf of the partieshereto as a sealed instrument as of the day and year first above written.

 

 
|   | PENN TREATY AMERICAN CORPORATION |
|--------|----------------------------------|
|   |                             |   |
|   | By:                              | /s/ William W. Hunt | (SEAL) |
|   |                             | Name: William W. Hunt |
|   |                             | Title: Pres. and COO |
|   |                             |   |
|   |                             |   |
|   | /s/ Irving Levit                 | (SEAL) |
|   | Irving Levit                     |
|        |                                  |  |  |  |

 

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**EXHIBIT A**

 

**SCOPEOF CONSULTING ENGAGEMENT**

 

Executive, with his extensive experience, expertise and industryknowledge, will be available to engage in the following activities:

 

•                                          Activelyutilize contacts and personal relationships in the insurance broker communityto promote the Company and its products.

 

•                                          Leverageprofessional relationships to gather feedback from brokers on how the Companycan improve its service and support brokers and agents.

 

•                                          ProvideSenior Management with advice on how current products might be more effectivelypackaged and sold.

 

•                                          Participatein selected sales and account management meetings, industry conferences andinvestor presentations.

 

•                                          Participateas a member of the Company’s Product Development Committee and contribute hisideas for innovative new products in long-term care and complementary productlines.

 

•                                          Identifyproduct and distribution opportunities for the Company.

 

•                                          Assistthe Board of Directors in its oversight of the Company and the evaluation andreview of Senior Management performance.

 

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