Edgar Filing: PENN TREATY AMERICAN CORP

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 24, 2002

TO THE SHAREHOLDERS OF PENN TREATY AMERICAN CORPORATION

The Annual Meeting of Shareholders of Penn Treaty American Corporation will be
held at Brookside Country Club, 901 Willow Lane, Macungie, Pennsylvania on
Friday, May 24, 2002, at 9:00 a.m. to consider and vote upon the following
proposals:

1. to elect three persons to Penn Treaty's Board of Directors as Class
III Directors to serve until the 2005 Annual Meeting of Shareholders
and until their successors are elected and have been qualified;

2. to approve the 2002 Employee Incentive Stock Option Plan;

3. to ratify and approve the issuance of:

o warrants to purchase shares of the Company's convertible
preferred stock,

o shares of convertible preferred stock upon the proper exercise of
the warrants, and

o shares of common stock upon proper conversion of the convertible
preferred stock,

all as provided in connection with the reinsurance agreement entered
into with Centre Solutions (Bermuda), Limited;

4. to ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants for Penn Treaty and its subsidiaries for the year
ending December 31, 2002; and

5. to transact other business that properly comes before the Annual
Meeting, or any adjournments or postponements.

Only those holders of our common stock of record at the close of business on
April 8, 2002 shall be entitled to notice of, and to vote at, the Annual
Meeting.

EACH SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE ANNUAL MEETING,
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN
THE ENCLOSED SELF-ADDRESSED ENVELOPE. ANY PROXY GIVEN BY A SHAREHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE SECRETARY OF PENN
TREATY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE. ANY
SHAREHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL MEETING.

By Order of the Board of Directors,

/s/ Sandra A. Kotsch
-----------------------------------
Sandra A. Kotsch, Secretary

Allentown, Pennsylvania
April 30, 2002

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 2002

INTRODUCTORY STATEMENT
----------------------

Penn Treaty American Corporation is a Pennsylvania corporation with its
principal executive offices located at 3440 Lehigh Street, Allentown,
Pennsylvania 18103, telephone number (610) 965-2222. This Proxy Statement is
being furnished to our shareholders in connection with the solicitation by our
Board of Directors of proxies to be voted at the Annual Meeting of Shareholders
of Penn Treaty to be held on May 24, 2002, at Brookside Country Club, 901 Willow
Lane, Macungie, Pennsylvania at 9:00 a.m., or at any adjournment or
postponement.

This Proxy Statement and the accompanying proxy card are first being mailed
to our shareholders on or about April 30, 2002. A copy of the Annual Report on
Form 10-K, which includes financial statements for the fiscal year ended
December 31, 2001, which are hereby incorporated by reference herein, is
enclosed with this Proxy Statement.

For your information, our subsidiaries are Senior Financial Consultants
Company (the "Agency"), Penn Treaty Network America Insurance Company ("PTNA"),
American Network Insurance Company ("ANIC"), American Independent Network
Insurance Company of New York ("AINIC"), United Insurance Group Agency, Inc.
("UIG") and Network Insurance Senior Health Division ("NISHD").

ABOUT THE ANNUAL MEETING
------------------------

What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will act upon the following matters:
the election of three directors of Penn Treaty, each to serve for a three-year
term expiring at the annual meeting of shareholders in 2005; the approval of the
2002 Employee Incentive Stock Option Plan; the ratification and approval of the
issuance of the warrants, convertible preferred stock and common stock as agreed
in connection with the reinsurance agreement entered into with Centre Solutions
(Bermuda), Limited; the ratification of our selection of PricewaterhouseCoopers
LLP as the independent public accountants for Penn Treaty and its subsidiaries
for the year ending December 31, 2002; and any other business that may properly
be brought before the Annual Meeting.

Who is entitled to vote?

Only shareholders of record on the record date, which was the close of
business on Monday, April 8, 2002, will be entitled to receive notice of, and to
vote at, the Annual Meeting and any adjournments or postponements. Each share of
common stock is entitled to one vote.

How do I vote?

If you complete and properly sign the accompanying proxy card and return it
to us, it will be voted as you direct. If you are a registered shareholder and
attend the Annual Meeting, you may deliver your completed proxy card in person
or vote in person at the Annual Meeting.

What constitutes a quorum?

The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting business to be conducted at the Annual Meeting.
As of the record date, 19,877,737 shares of common stock were outstanding, held
by 441 shareholders of record.

How does discretionary voting authority apply?

If you sign and return your proxy card, but do not make any selections, you
give discretionary authority to the persons named as proxy holders on the proxy
card, Alexander M. Clark, Matthew W. Kaplan and Domenic P. Stangherlin, to vote
on the proposals and any other matters that may arise at the Annual Meeting.

What are the Board's recommendations?

Unless you give other instructions on your proxy card, the proxy holders
will vote in accordance with the recommendations of the Board of Directors. The
Board recommends a vote:

o FOR election of the three nominees for director of Penn Treaty,
Francis R. Grebe, Michael F. Grill and Gary E. Hindes; and

o FOR the approval of the 2002 Employee Incentive Stock Option Plan;

o FOR the ratification and approval of the issuance of the warrants,
convertible preferred stock and common stock as agreed in connection
with the reinsurance agreement with Centre Solutions (Bermuda),
Limited; and

o FOR the ratification of our selection of PricewaterhouseCoopers LLP as
the independent public accountants for Penn Treaty and its
subsidiaries for the year ending December 31, 2002.

With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board or, if no recommendation
is given, in their own discretion.

What vote is required to elect the Directors?

The three nominees for Director receiving the highest number of votes cast
by shareholders entitled to vote for Directors (there being no cumulative
voting) will be elected to serve on the Board. Abstentions and broker non-votes
will be included in the calculation of a quorum but will have no effect on the
result of the vote.

What vote is required to approve the Employee Incentive Stock Option Plan?

The approval of the Company's 2002 Employee Incentive Stock Option Plan
will require the affirmative vote, either in person or by proxy, of the holders
of shares representing at least a majority of the votes cast at the Meeting.
Abstentions and broker non-votes will be included in the calculation of a quorum
but will have no effect on the result of the vote.

What vote is required to ratify and approve the issuance of the warrants,
convertible preferred stock and common stock as agreed in connection with the
reinsurance agreement with Centre Solutions (Bermuda), Limited?

The ratification and approval of the issuance of the warrants, convertible
preferred stock and common stock as agreed in connection with the reinsurance
agreement with Centre Solutions (Bermuda), Limited will require the affirmative
vote, either in person or by proxy, of shares representing at least a majority
of the votes cast at the Meeting. Abstentions and broker non-votes will be
included in the calculation of a quorum but will have no effect on the result of
the vote.

Can I change my vote after I return my proxy card?

Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of Penn
Treaty either a notice of revocation or a duly executed proxy bearing a date
later than the date on the proxy you submitted. The powers of the proxy holders
to vote your proxy will be suspended if you attend the Annual Meeting in person
and request to change your vote or vote in person, although attendance at the
Annual Meeting will not by itself revoke a previously granted proxy.

Who bears the cost of solicitation of proxies?

We bear the cost of preparing, printing, assembling and mailing this proxy
statement and other material furnished to shareholders in connection with the
solicitation of proxies for the Annual Meeting. We have retained the services of
Georgeson Shareholder at a cost of approximately $5,500 to perform proxy
solicitation activities on our behalf.

When are shareholder proposals due for the Year 2003 Annual Meeting?

To be included in next year's proxy statement, shareholder proposals must
be submitted in writing by December 30, 2002 to: Secretary, Penn Treaty American
Corporation, 3440 Lehigh Street, Allentown, PA 18103. If any shareholder wishes
to present a proposal to the 2003 annual meeting that is not included in Penn
Treaty's proxy statement for that meeting and does not submit such proposal to
the Secretary of Penn Treaty until after March 15, 2003, then the persons named
in the proxy card for the 2003 annual meeting will be allowed to use their
discretionary voting authority when the proposal is raised at the 2003 annual
meeting, without any discussion of the matter in the proxy statement for that
meeting.

PROPOSAL I - ELECTION OF DIRECTORS
----------------------------------

Our Board of Directors currently has nine members and is divided into three
classes, each comprised of three Directors who serve for terms of three years
and until their successors have been elected and qualified. The Board has
nominated Francis R. Grebe, Michael F. Grill and Gary E. Hindes to be elected as
Class III Directors of Penn Treaty, to hold office until the 2005 annual meeting
and until their successors have been elected and qualified. James M. Heyer is
standing for re-election as a Director of Penn Treaty. The nominees have each
consented to serve if elected to the Board. If for any reason any of the
nominees becomes unable or is unwilling to serve at the time of the Annual
Meeting, the proxy holders, unless you instruct them otherwise, will vote for a
substitute nominee or nominees in their discretion. We do not anticipate that
any nominee will be unavailable for election.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES FOR A FIXED TERM OF THREE YEARS.

The following table and paragraphs set forth information about the current
nominees and the other persons who will continue to serve as Directors of Penn
Treaty. The information has been furnished to Penn Treaty by each person
nominated as a Director and each person whose term of office as a Director will
continue after the Annual Meeting.

Director
Name Age Position(s) with Penn Treaty Since
-------------------------------------------------------------------------------

Class III: Nominees to be elected for terms expiring in 2005:

Francis R. Grebe 70 Director 1999

Michael F. Grill 52 Treasurer, Comptroller and 1986
Director

Gary E. Hindes 51 Director Nominee Current Nominee

Class I: Directors continuing for terms expiring in 2003:

A.J. Carden 69 Executive Vice President and Director 1983

Irving Levit 72 Founder, Chairman of the Board of 1971
Directors, President and Chief
Executive Officer

Domenic P. Stangherlin 75 Director 1971

Class II: Directors continuing for terms expiring in 2004:

Jack D. Baum 68 Vice President of Agency Management 1987
and Director

Alexander M. Clark 68 Director 1999

Matthew W. Kaplan 43 Director 2001

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

Francis R. Grebe has served as a Director of Penn Treaty since 1999. Mr.
Grebe is a partner at the investment counseling firm of Davidson Investment
Counselors, formerly James M. Davidson and Company. He has held this position
since 1988. Mr. Grebe has also served as an Administrative Officer of Davidson

Trust Company, formerly The Main Line Trust Company, a private fiduciary, since
1996. Mr. Grebe has over 40 years experience with leading financial institutions
in the trust and investment area, including Girard Trust Bank, Philadelphia
National Bank and U.S. Trust Company of Florida. Mr. Grebe currently serves as a
Director of the Athenaeum of Philadelphia and as a Trustee of The Guthrie
Healthcare System. He is also a Director and former President of Family Services
of Montgomery County, Pennsylvania and currently serves on The Board of Surrey
Services for Seniors. He also serves as Trustee of the Meshewa Farm Foundation
and The Sylvan Foundation. Mr. Grebe is a Phi Beta Kappa graduate of the
University of Rochester and the University of Michigan Law School, and is
admitted to practice law in Michigan, Illinois and New York.

Michael F. Grill has served as Treasurer and Comptroller of Penn Treaty
since 1981, of the Agency since 1988, of PTNA since 1989, of ANIC since 1996 and
of AINIC since its inception in 1997. Mr. Grill became a Director of the Agency
in 1988, of PTNA in 1989, of ANIC in 1996, of AINIC in 1997 and of NISHD in
2000. Prior to joining Penn Treaty, Mr. Grill served as Chief Accountant for
World Life and Health Insurance Company located in King of Prussia, Pennsylvania
from 1973 to 1981. Mr. Grill has over 25 years experience in the insurance
business.

Gary E. Hindes has served as Managing Director of Deltec Asset Management,
LLC, a professional investment management firm located in New York City, since
2000. From 1996 to 2000, Mr. Hindes was a principal of PMG Capital, Inc., a
Philadelphia investment banking and brokerage concern. From 1986 to 1996, Mr.
Hindes served as Chief Executive Officer of the Delaware Bay Company, Inc. Mr.
Hindes has formerly served on the board of directors of Lancer Industries and
Intranet Corporation. Mr. Hindes has also served as the Chairman of the Board of
Trustees of Wilmington Head Start, Inc. since 1982 and served by presidential
appointment from 1993 to 2001 as a trustee of the John F. Kennedy Center for the
Performing Arts. Mr. Hindes is currently a member of the Investment Oversight
Committee of the United States Holocaust Memorial Museum and is a commissioner
of the Wilmington Housing Authority.

A. J. Carden has served as Executive Vice President of Penn Treaty since
1983. Mr. Carden has also served as Executive Vice President and Director of the
Agency since 1988, of PTNA since 1989, of ANIC since 1996 and of AINIC since its
inception in 1997. Mr. Carden also serves as Vice President, Secretary and
Director of NISHD. From 1970 to 1983, Mr. Carden served as Assistant to the
President and Vice President of Claims for Columbia Life Insurance Company and
Columbia Accident and Health Insurance Company located in Bloomsburg,
Pennsylvania. Mr. Carden has over 40 years experience in the insurance business.

Irving Levit has served as Chairman of the Board of Directors, President
and Chief Executive Officer of Penn Treaty since 1972. Mr. Levit has also served
as President of PTNA, ANIC and AINIC since December 2000, as the Chairman of the
Board of Directors and Chief Executive Officer of PTNA since 1989, ANIC since
1996 and of AINIC since its inception in 1997 and as the Chairman of the Board
of Directors, President and Chief Executive Officer of the Agency since 1988.
Mr. Levit also serves as Chairman of the Board, President and Chief Executive
Officer of NISHD, and Chairman of the Board of UIG. In addition, Mr. Levit has
been the sole owner of the Irv Levit Insurance Management Corporation ("IMC"),
an insurance agency, since 1961. Mr. Levit has over 40 years experience in the
insurance business.

Domenic P. Stangherlin has served as Director of Penn Treaty since 1971, of
the Agency since 1988, of PTNA since 1989, and of ANIC since 1996. Mr.
Stangherlin also served as Secretary of Penn Treaty from 1971 to 1999, of the
Agency from 1988 to 2000, of PTNA from 1989 to 2000, of ANIC from 1996 to 2000,
and of AINIC from 1997 to 2000. Mr. Stangherlin is the owner and manager of the
Line Tool Company, a manufacturer of micropositioners, located in Allentown,
Pennsylvania.

Jack D. Baum has served as a Vice President of Penn Treaty since 1985, of
the Agency since 1988, of PTNA since 1989, of ANIC since 1996 and of AINIC since
its inception in 1997. Prior to joining Penn Treaty, Mr. Baum served as Vice
President of Marketing for National Security General Insurance Company in
Lancaster, Pennsylvania from 1983 to 1985 and as a Director of Group Sales and
Marketing for Educators Mutual Life Insurance in Lancaster, Pennsylvania from
1976 to 1983. Mr. Baum has over 25 years experience in the insurance business.

Alexander M. Clark has served as Director of Penn Treaty since 1999 and of
AINIC since its inception in 1997. Mr. Clark is a Managing Director of Advest,
Inc., a position he has held since 1993. He previously served as Senior Vice
President at Gramercy Partners and McKinley Allsopp, both of New York; as
President of John Alden Life Insurance Company of New York; and as Associate
Director of Research of Dean Witter & Co. Mr. Clark is a member of the
Association of Insurance and Financial Analysts(CFA-1968). Mr. Clark has also
served as Director of Pennsylvania National Insurance Group since 1989, and of
Great American Life Insurance Company of New York, a subsidiary of Great
American Financial Resources, Inc., since 2001.

Matthew W. Kaplan has served as Director of Penn Treaty and AINIC since
2001. Mr. Kaplan has served as Chief Executive Officer and Director of Crown
Reinsurance Company (Cayman) Limited, a wholly owned subsidiary of U.S. Care,
Inc. ("U.S. Care"), since 1999; as Chairman of Northstar TeleFilm, Inc. since
1999; and as a Principal of Northstar Consulting since 2001. Mr. Kaplan
previously served as Vice President of Bench International, LLC during 2001, and
as President and Chief Executive Officer of U.S. Care from 1996 to 2001. From
1995 to 1996, Mr. Kaplan served as Chief Marketing Officer for U.S. Care. Prior
to joining U.S. Care, Mr. Kaplan served as General Manager and Vice Chairman of
the North Melbourne Giants Basketball Pty. Ltd.; Consultant, Strategic Planning
and Evaluation for the World Health Organization, Regional Office for Europe and
for the Commission for the European Communities; Managing Partner for B&K
Development LLP; and held several positions with U.S. Administrators, Inc., the
last position being that of Executive Vice President. Mr. Kaplan is a member of
the Board of Trustees for the UCLA Center on Aging and is a Founding Director of
Cancervive. Mr. Kaplan also currently serves on the Board of Directors of the
American Manufacturers Warranty Association, Healant, Inc., and U.S. Care. U.S.
Care is an integrated chronic care management company, whose services include
the design and management of long-term care insurance programs.

GENERAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------------------------------------

How often did the Board meet during 2001?

During 2001, the Board of Directors held ten meetings. Each Director
attended at least 75% of the meetings of the Board and the Committees of the
Board on which he served. The average attendance of directors at Board and
Committee meetings held during 2001 was 95%.

What committees has the Board established?

To assist in the discharge of its responsibilities, the Board of Directors
has three committees - the Audit Committee, the Compensation Committee and the
Executive Committee. The Board of Directors does not have a nominating
committee. The total combined attendance for all Committee meetings was 100%.

Audit Committee. The principal functions of the Audit Committee are to
assist the Board of Directors in the oversight of executive management's
responsibilities related to Penn Treaty's internal control process. In
connection with this function, the Audit Committee reviews various policies and
practices of management related to Penn Treaty's responsibilities to its
investors, customers, employees and the general public.

The Audit Committee is comprised of three outside directors, Mr. Clark, Mr.
Grebe, and Mr. Stangherlin. Mr. Stangherlin previously served as the Secretary
to Penn Treaty and its subsidiaries from 1988 to 2000. The Board of Directors
has determined in its business judgment that Mr. Stangherlin's membership on the
Audit Committee is in the best interests of Penn Treaty and its shareholders
based upon his substantial experience as a member of Penn Treaty's Board of
Directors and private industry management tenure. Penn Treaty believes that each
member of the Audit Committee is now independent as independence is defined in
the New York Stock Exchange listing standards. The Audit Committee has a written
charter, adopted in September 1999. The Audit Committee held three meetings
during 2001.

Compensation Committee. The principal functions of the Compensation
Committee are to review and evaluate, at least annually, the performance of the
chief executive officer and other senior officers of Penn Treaty and its
subsidiaries, and to set their remuneration, including incentive rewards. The
members of the Compensation Committee during 2001 were Mr. Clark, Mr. Grebe and
Mr. Stangherlin. The Compensation Committee met twice in 2001.

Executive Committee. During the periods between Board meetings, the
Executive Committee exercises all of the powers of the Board of Directors,
except that the Executive Committee may not elect directors, change the
membership of or fill vacancies in the Executive Committee, fix the compensation
of the Directors, change the Bylaws, or take any action restricted by the
Pennsylvania Business Corporation Law or the Bylaws (including actions delegated
to another Board Committee). The members of the Executive Committee during 2001
were Mr. Levit, Mr. Carden and Mr. Stangherlin. The Executive Committee met
twice in 2001.

How are Directors compensated?

Each Director receives a fee of $400 for each regular Board meeting
attended. In addition, Mr. Clark, Mr. Grebe and Mr. Stangherlin receive a
monthly fee of $200 for their service as members of Penn Treaty's Audit
Committee.

Information with respect to the share ownership of the Directors and the
nominees is set forth below. See "Principal Shareholders."

Certain Relationships and Related Transactions

IMC, an insurance agency which is owned by Irving Levit, produced
approximately $34,000, $43,000 and $10,000 of new and renewal premiums for PTNA
for the years ended December 31, 1999, 2000 and 2001, respectively, for which it
received commissions of approximately $8,000, $10,000 and $2,000 respectively.
While IMC has only been minimally involved in the sale of insurance products
since 1979 and IMC'S operations since that time have not been significant, IMC
continues to receive overriding commissions from Penn Treaty of 5% on business
written for PTNA by any IMC general agents who were appointed prior to 1979 and
any of their sub-agents hired prior and subsequent to January 1979 and one agent
appointed in 1981. For the years ended December 31, 1999, 2000 and 2001, these
overriding commissions totaled approximately $543,000, $551,000 and $544,000,
respectively. The premium revenues on which such overrides are paid are based on
commissions which are higher than those currently paid to independent agents.

Director Matthew W. Kaplan is a principal of U.S. Care, Inc. ("U.S. Care").
During the years ended December 31, 2000 and 2001, U.S. Care engaged in certain
consulting and marketing capacities for PTNA for which it received customary
overriding commission fees of $23,000 and $159,000, respectively. Additionally,
in 2001, Penn Treaty entered into a loan arrangement with U.S. Care whereby Penn
Treaty loaned $100,000 to U.S. Care. The loan bears interest at nine percent
(9%), and repayment is guaranteed by renewal commissions due U.S. Care.

The terms on which commissions have been paid to IMC and U.S. Care are
consistent with (i) the terms on which commissions have been paid by Penn Treaty
to comparable unaffiliated agencies in the past and currently to one
unaffiliated agency performing similar services and (ii) the terms on which
commissions are paid in the industry in general, and were no less favorable than
would have been obtained from unrelated third parties. To the extent that Penn
Treaty engages in future transactions with any of its affiliates, all such
transactions will likewise be on terms no less favorable than could be obtained
from unaffiliated parties and will be approved by a majority of Penn Treaty's
disinterested directors.

Director Francis R. Grebe is a partner at the investment counseling firm of
Davidson Investment Counselors, formerly James M. Davidson and Company, an
affiliate of Davidson Capital Management. Davidson Capital Management manages a
portion of our investment portfolio for which it received fees of $300,000 and
$462,000 for the years ended December 31, 2000 and 2001, respectively. Mr. Grebe
is not directly involved with any of Penn Treaty's investment matters. Mr. Grebe
serves as a financial advisor to Irving Levit on some of Mr. Levit's personal
matters for which he is compensated by Mr. Levit.

Director Alexander M. Clark is a Managing Director with Advest, Inc.
Advest, Inc. has engaged in, and may in the future engage in, investment banking
and other commercial dealings in the ordinary course of business with Penn
Treaty. Advest, Inc. has received and will receive customary fees for these
transactions. Advest, Inc. received fees of $475,000 for the year ended December
31, 2001 for its services to Penn Treaty in connection with its April 2001
rights offering.

Other Executive Officers of Penn Treaty

William W. Hunt, Jr. (42) has served as Senior Vice President of Penn
Treaty since 2001. Mr. Hunt formerly served as Vice President and Chief
Financial Officer of the Individual Life Insurance Unit of Prudential Insurance
Company of America from 1999 to 2000. He was responsible for financial
management, planning and analysis functions for Prudential's Individual Life
Insurance profit center and its third party distribution channel. From 1997 to
1999, Mr. Hunt served as Vice President of Corporate Planning and Development at
Provident Mutual Life Insurance Company ("Provident"), where he was responsible
for the development and management of the strategic planning process and for
providing leadership in the facilitation of major corporate development
projects. Provident is a multi-billion dollar diversified Financial Services
organization that develops and distributes fixed and variable life insurance and
annuity products, pension products and mutual funds. Prior to joining Provident,
Mr. Hunt served in financial management roles at Advanta Corporation, Covenant
Life Insurance Company and Reliance Insurance Companies. Mr. Hunt, a Certified
Public Accountant, began his career as an auditor with Touche Ross & Co.

Cameron B. Waite (41) has served as Chief Financial Officer of Penn Treaty
since May 1996. Mr. Waite also serves as Director, Treasurer and Chief Financial
Officer of NISHD. From 1994 to 1996, Mr. Waite was Chief Financial Officer and
Treasurer of Blue Fish Clothing, Inc., a manufacturer, wholesaler and retailer
of women's clothing. From 1983 to 1994, Mr. Waite held various positions with
Independence Bancorp. Inc., which merged with CoreStates Financial Corporation,
his last position being Vice President of Asset Liability Management. Mr. Waite
holds a B.A. in Economics from Dickinson College and an M.B.A. from Lehigh
University.

James M. Heyer (38) has served as the Chief Operating Officer of Penn
Treaty's insurance company subsidiaries since January 1999. Mr. Heyer has also
served as a director of Penn Treaty since May 2001, of ANIC since 1996, and of
AINIC since 1997. From 1993 to 1998, Mr. Heyer served as the companies' Vice
President of Administration. Mr. Heyer oversees all aspects of claims,
underwriting, compliance and product development for Penn Treaty's insurance
company subsidiaries. Prior to joining Penn Treaty in 1988, Mr. Heyer was
employed by The Guardian Life Insurance Company of North America. Mr. Heyer
received his B.S. in Business Administration and Marketing from Penn State
University. Mr. Heyer has over 15 years experience in the insurance business.

Section 16(a)Beneficial Ownership Reporting Compliance

The rules of the Securities and Exchange Commission require that Penn
Treaty disclose delinquent filings for reports of stock ownership (and changes
in stock ownership) by its directors and executive officers. To the best of Penn
Treaty's knowledge, all Form 3, Form 4 and Form 5 reports were timely filed.

PROPOSAL II - APPROVAL OF THE
2002 EMPLOYEE INCENTIVE STOCK OPTION PLAN
-----------------------------------------

Proposal

The Penn Treaty American Corporation 2002 Employee Incentive Stock Option
Plan (the "2002 Plan") was approved by the Board in April 2002. If the 2002 Plan
is approved by the Board and the shareholders, it will authorize the Company to
grant "incentive stock options" under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified stock options, covering up
to an aggregate of 2,000,000 shares of common stock.

The purpose of the Plan is to enable the Company to offer officers, directors
and employees of the Company and its subsidiaries options to acquire equity
interests in the Company, thereby attracting, retaining and rewarding such
persons, and strengthening the mutuality of interests between such persons and
the Company's shareholders. The 2002 Plan does not replace the 1998 Employee
Stock Option Plan, which continues in effect.

A copy of the 2002 Plan is set forth in Appendix "A" to this Proxy
Statement.

Administration

The 2002 Plan is administered and interpreted by the Compensation Committee
of the Board of Directors (the "Committee").

The Committee has the authority to (i) adopt, alter and repeal such
administrative rules, guidelines and practices as it deems advisable for the
administration of the 2002 Plan; (ii) interpret the terms and provisions of the
2002 Plan and any award granted thereunder; (iii) otherwise supervise the
administration of the 2002 Plan; and (iv) amend, discontinue or terminate the
Plan or any part thereof, except that, unless required by law, no such
amendment, discontinuance or termination will impair a participant's options
previously granted and, to the extent required by any law, such amendment,
discontinuance or termination will be submitted to the shareholders for
approval. In addition, the Committee may correct any defect, supply any omission
or reconcile any inconsistency in the 2002 Plan or in any award granted in the
manner and to the extent it shall deem necessary to carry the 2002 Plan into
effect. In the event of any disagreement as to the interpretation of the 2002
Plan or any rule or procedure thereunder, the decision of the Committee will be
final and binding upon all persons in interest.

Eligible Participants

All officers, directors and employees of the Company and its subsidiaries
are eligible to be granted incentive stock options and non-qualified stock
options under the 2002 Plan. As of April 19, 2002, all of the Company's
officers, directors and employees were eligible to participate in the 2002 Plan.

Duration of the 2002 Plan

The term of the 2002 Plan is 10 years. No awards may be made under the 2002
Plan on or after the tenth anniversary of its approval by Penn Treaty's Board of
Directors.

Number of Shares Subject to the 2002 Plan

The maximum number of shares of common stock that may be issued under the
2002 Plan is 2,000,000. No participant may be granted awards of stock options
representing more than 250,000 shares during any calendar year. The shares may
be either authorized and unissued shares or issued shares reacquired by the
Company. The aggregate number of shares issuable under the 2002 Plan, the number
of shares issuable to each participant and the number of shares subject to
awards made under the 2002 Plan will be adjusted to reflect the increase or
decrease in the number of issued shares of common stock in the event of a
merger, reorganization, consolidation, recapitalization, dividend (other than a
regular cash dividend), stock split, or other change in corporate structure.

If any stock option granted under the 2002 Plan expires, terminates or is
cancelled for any reason without having been exercised in full, the number of
unpurchased shares will again be available for the purposes of the 2002 Plan.

Awards Under the 2002 Plan

The terms of stock options granted under the 2002 Plan are determined by
the Committee. The Committee will determine the eligible recipients, option
price, the expiration date of the option (provided that no option is exercisable
more than ten years after the date the option is granted), the number of shares
to which the option pertains, any conditions relating to the exercise of the
option and such other terms and conditions as the Committee, in its sole
discretion, shall determine. The Committee will also specify whether the option
is intended to be an incentive stock option ("ISO") eligible for preferential
tax treatment under Section 422 of the Code or a non-qualified stock option.

The exercise price for ISOs shall not be less than the fair market value of
the Company's common stock on the date of grant. The exercise price for
non-qualified stock options will be determined by the Committee at the time of
grant. The exercise price may be paid (i) in cash, (ii) to the extent determined
by the Committee, in the form of shares of common stock duly owned by the
participant (and for which the participant has good title free and clear of any
liens and encumbrances), based on the fair market value of the shares of common
stock on the date of exercise or (iii) by a combination of cash and shares of
common stock. A participant will not be deemed to be the holder of shares of
common stock, or to have the rights of a holder of common stock, with respect to
common stock subject to an option, unless and until a stock certificate
representing the shares subject to an option is issued to the participant.

In the event that a participant's employment with the Company and all its
subsidiaries terminates by reason of the death of the participant, any stock
option held by such participant exercisable as of the date of death may be
exercised by the legal representative of the participant's estate. Such stock
option shall be exercisable until the earlier of twelve months after the date of
death or until the expiration of the term of such stock option. Stock options
not exercisable on the date of death shall be forfeited.

In the event that a participant's employment with the Company and all its
subsidiaries terminates by reason of the disability of the participant, any
stock option held by the participant exercisable as of the date of disability
may be exercised until the earlier of twelve months after the date of such
termination or until the expiration of such stock option. If an ISO is exercised
after the expiration of the exercise period that applies for purposes of Section
422 of the Code, such stock option will be treated as a non-qualified stock
option.

If a participant's employment with the Company and all of its subsidiaries
terminates for any reason other than death or disability, any stock option held
by such participant shall be forfeited on the date of such termination.

Stock options issued under the 2002 Plan may not be transferred by a
participant other than by will or the laws of descent and distribution. During a
participant's lifetime, stock options granted to a participant may only be
exercised by the participant.

Federal Tax Consequences

The federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed and
may vary from locality to locality.

Non-Qualified Stock Options. A participant will not be deemed to receive
any income at the time a non-qualified stock option is granted, nor will the
Company be entitled to a deduction at that time. However, when any part of a
non-qualified stock option is exercised, the participant will be deemed to have
received compensation taxable as ordinary income in an amount equal to the
difference between the exercise price of the non-qualified stock option and the
fair market value of the shares received upon the exercise of the non-qualified
stock option. Where a non-qualified stock option is exercised by a director or
executive officer within six months of the date of its grant, the recognition of
income in respect of such exercise will ordinarily be delayed until such shares
may be resold without incurring liability under Section 16(b) of the Exchange
Act (generally six months after the date of grant of the non-qualified stock
option), and in such case the amount of such ordinary income will be determined
as of the date of recognition based upon the fair market value of the shares on
that date. If, however, a participant subject to Section 16(b) of the Exchange
Act properly files an appropriate election under Section 83(b) of the Code with
the Internal Revenue Service, such participant will be deemed to have received
compensation taxable as ordinary income in an amount equal to the difference
between the exercise price and the fair market value, on the date of exercise,
of the shares received upon such exercise. The Company will (subject to any
applicable Code limitation) be entitled to a tax deduction in an amount equal to
the amount of compensation taxable as ordinary income when such income is
recognized by the participant.

Upon any subsequent sale of the shares acquired upon the exercise of a
non-qualified stock option, any gain (the excess of the amount received over the
fair market value of the shares on the date ordinary income was recognized) or
loss (the excess of the fair market value of the shares on the date ordinary
income was recognized over the amount received) will be a long-term or
short-term capital gain or loss, depending on the holding period of the shares.

If all or any part of the exercise price of a non-qualified stock option is
paid by the participant with shares (including shares previously acquired upon
exercise of an incentive stock option), no gain or loss will be recognized on
the shares surrendered in payment. The number of shares received on such
exercise of the non-qualified stock option equal to the number of shares
surrendered will have the same basis and holding period, for purposes of
determining whether subsequent dispositions result in long-term or short-term
capital gain or loss, as the basis and holding period of the shares surrendered.
The balance of the shares received on such exercise will be treated for federal
income tax purposes as described in the preceding paragraphs as though issued
upon the exercise of the non-qualified stock option for an option exercise price
equal to the consideration, if any, paid by the participant in cash. The
participant's compensation, which is taxable as ordinary income upon such
exercise, and the Company's deduction will not be affected by whether the
exercise price is paid in cash or in shares.

Incentive Stock Options. A participant will not be deemed to receive any
income at the time an incentive stock option is granted or exercised pursuant to
the 2002 Plan. (However, special rules apply to participants who are subject to
the alternative minimum tax.) If a participant does not dispose of the shares
acquired upon exercise of an incentive stock option within two years after the
grant of the incentive stock option and one year after the exercise of the
incentive stock option, the gain (if any) on a subsequent sale (the excess of
the amount received over the exercise price) or loss (if any) on a subsequent
sale (the excess of the exercise price over the amount received) will be a
long-term capital gain or loss.

If the participant disposes of the shares acquired upon exercise of an
incentive stock option within two years after the date of grant of the incentive
stock option or within one year after the exercise of the incentive stock
option, the disposition is a "disqualifying disposition," and the participant
will generally recognize income in the year of the "disqualifying disposition"
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the fair market value
of the shares at the time the incentive stock option was exercised over the
option exercise price will be treated as compensation taxable as ordinary income
(for which the Company will be entitled to a tax deduction in the year of the

"disqualifying disposition") and the balance, if any, will be long-term or
short-term capital gain depending on the holding period of the shares. However,
in the case of a "disqualifying disposition" that is a sale or exchange (other
than a sale or exchange with certain persons related to the participant), the
amount of compensation income recognized by the participant cannot exceed the
excess of the amount received over the option exercise price, even where the
amount received is less than the fair market value of the shares at the time the
incentive stock option was exercised. If a participant uses shares acquired upon
the exercise of an incentive stock option to exercise an incentive stock option
at a time when the sale of such shares would constitute a "disqualifying
disposition," the participant will recognize ordinary income in the amount
described in the preceding two sentences.

Withholding

The Company has the right to reduce the number of shares otherwise
deliverable under the 2002 Plan by an amount that would have a Fair Market Value
on such date equal to the amount of all federal, state and local taxes required
to be withheld by the Company, or to deduct the amount of such taxes from any
cash payment otherwise to be made to the participant. In connection with such
withholding, the Committee may make such arrangements as are consistent with the
2002 Plan as it deems appropriate.

THE BOARD OF DIRECTORS DEEMS PROPOSAL II TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" APPROVAL OF THE
2002 EMPLOYEE INCENTIVE STOCK OPTION PLAN.

PROPOSAL III - RATIFICATION AND APPROVAL OF ISSUANCE OF WARRANTS,
CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
--------------------------------------------

Proposal

On September 12, 2001, the Company suspended sales of new long-term nursing
facility and home htalth care insurance products in all states except New York
while the Pennsylvania Insurance Department considered the Company's Corrective
Action Plan for two of the Company's subsidiaries, Penn Treaty Network America
Insurance Company and American Network Insurance. The statutory surplus
position. In February 2002, the Pennsylvanis result, the Company recommenced
sales of its long-term care insurance products in Pennsylvania and 22 other
states. The principal component of the Corrective Action Plan was a Reinsurance
Agreement with Centre Solutions (Bermuda) Limited, ("Centre Solutions") a
subsidiary of Zurich Financial Services Group, pursuant to which Centre
Solotions agreed to reinsure 100% of the long-term care insurance policies of
Penn Treaty Network America insurance Company and American Network Insurance
Company in-force on December 31, 2001, subject to an aggregate limit of
liability.

In connection with the Reinsurance Agreement, the Company granted Centre
Solutions three tranches of warrants to purchase shares of warrants to purchase
shares of non-voting convertible preferred stock that, if converted, would
represent 15% of the Company's outstanding shares of common stock.

The Reinsurance Agreeement contains provisions, which permit the Company to
commute the Reinsurance Agreement on December 31, 2007 or on December 31 of any
year thereafter. (The Company may also commute before December 31, 2007 in the
event of a change in control of the Company, insolvency of the Company, or a
material breach of the Reinsurance Agreement by the Company). Under statutory
accounting practices and principles, the Company cannot be obligated to commute
the Reinsurance Agreement. although the Company is not required to commute the
Reinsurance Agreement, it anticipates that it will do so on December 31, 2007.
Commutation is a term of art meaning the transfer back to Penn Treaty of the
liabilities of the long-term care insurance policies reinsured by Centre
Solutions. In exchange, Centre Solutions is required to pay Penn Treaty a sum
equal to the then current balance of a notional Experience Account referred to
in the Reinsurance Agreement, plus interest.

The Company is required to have a certain amount of policy reserves and
statutory surplus for every policy for which it is liable. The Company's
financial model indicates that the anticipated profits from the reinsured
business will be sufficient to meet or exceed all state regulations and
requirements for policy reserves and statutory surplus on December 31, 2007 and
therefore, that the Company will be able under such regulations, to elect
commutation at that time. However, there can be no assurance that the Company's
financial model will accurately predict the actual results of the Company's
operations and that the actual accumulated profits from the reinsurance business
will be sufficient to meet requirements for policy reserves and statutory
surplus on December 31, 2007. Reduced profits and the Company's inability to
commute the Reinsurance Agreement could result from adverse claims experience,
significant policy lapses, inferior investment returns, the inability to obtain
anticipated premium rate increases or excessive administrative costs arising
during the next six years.

The Company has also granted Centre Solutions a fourth tranche of warrants,
exercisable if the Company does not commute the reinsured business on or before
December 31, 2007, to purchase shares of non-voting convertible preferred stock
that, if converted, would represent an additional 20% of the Company's
outstanding shares of common stock. The Company believes that the potential
dilution which would occur upon exercise of the fourth tranche of warrants by
the reinsurer provides substantial incentive for it to commute the Reinsurance
Agreement on the commutation date to avoid this exercise. In the event that the
accumulated profits from the reinsured business differ substantially from the
Company's financial model, the Company may not desire to or may be unable to
commute the Reinsurance Agreement, thereby allowing the fourth tranche of
warrants to become exercisable by Centre Solutions.

The conversion of any of the shares of non-voting convertible preferred
stock purchased by Centre Solutions by exercise of the warrants will result in
an increase in the total outstanding shares of Penn Treaty common stock, which
will result in a reduction of the percentage of ownership of the Company by
holders of the Company's common stock prior to the conversion and possibly
decrease the value of each share of common stock outstanding prior to the
conversion. In addition, if Centre Solutions transfers the non-voting
convertible preferred stock purchased by exercise of two or more tranches of the
warrants to a single holder, then conversion of such non-voting convertible
preferred stock would cause such holder to become the largest single shareholder
of the Company, which, in turn, could allow such holder to exercise control of
the Company's affairs by virtue of its power to elect directors.

Terms of the Warrants

Description of the Warrants. The warrants issued consisted of the
following, with the exercise percentages and exercise prices subject to
adjustment as described below:

o A warrant to purchase the number of shares of the Company's Series A-1
Convertible Preferred Stock of the Company which initially would, on
the date of exercise, be convertible into 8.69% of the number of fully
diluted outstanding shares of the common stock of the Company
determined as of the date of exercise. The exercise price of this
warrant is initially $12.00 per share.

o A warrant to purchase the number of shares of the Company's Series A-2
Convertible Preferred Stock of the Company which initially would, on
the date of exercise, be convertible into 4.55% of the number of fully
diluted outstanding shares of the common stock of the Company
determined as of the date of exercise. The exercise price of this
warrant is initially $24.00 per share.

o A warrant to purchase the number of shares of the Company's Series A-3
Convertible Preferred Stock of the Company which initially would, on
the date of exercise, be convertible into 3.52% of the number of fully
diluted outstanding shares of the common stock of the Company
determined as of the date of exercise. The exercise price of this
warrant is initially $36.00 per share.

o A warrant to purchase the number of shares of the Company's Series A-4
Convertible Preferred Stock of the Company which initially would, on
the date of exercise, be convertible into 30.78% of the number of
fully diluted outstanding shares of the common stock of the Company
determined as of the date of exercise. The exercise price of this
warrant is initially $6.00 per share.

The warrants to purchase shares of Series A-1 Convertible Preferred Stock,
Series A-2 Convertible Preferred Stock and Series A-3 Convertible Preferred
Stock are presently exercisable and expire on December 31, 2007. The warrant to
purchase shares of Series A-4 Convertible Preferred Stock becomes exercisable on
January 1, 2008 and expires on the earlier of December 31, 2013 or the date the
business reinsured with Centre Solutions (Bermuda), Limited is commuted.

Adjustment of the Exercise Price and the Number of Shares. The number of
shares of convertible preferred stock that may be purchased on the exercise of
the warrants and the exercise price are subject to adjustment in certain
circumstances:

o In the event of any stock dividend or stock split, the exercise price
will be adjusted in reverse proportion to the change in the number of
shares covered by the warrant.

o If the Company distributes any evidences of its indebtedness, shares
of its stock or other securities or property (other than cash or stock
dividends), or warrants or rights to acquire any of the foregoing,
then the number of shares of convertible preferred stock that may be
purchased upon exercise of the warrant will be increased so that the
percentage of the fully diluted outstanding common stock subject to
acquisition upon conversion of the convertible preferred stock
acquired upon exercise of the warrant will be increased in proportion
to the amount by which the distribution of indebtedness, securities,
property or rights decreases the fair market value of a share of
common stock. The amount of the decrease in the fair market value of a
share of the Company's common stock caused by any such distribution
will be determined in good faith by the Board of Directors of the
Company and supported by an opinion from an investment banking firm of
recognized national standing acceptable to a majority of the holders
of the warrants.

o If the Company should issue or sell shares of common stock at a price
less than the current fair market value of a share of common stock or,
if greater, the exercise price of the convertible preferred stock
divided by the number of shares into which the convertible preferred
stock is then convertible (which is initially three shares of common
stock), then the exercise price under the warrant will be reduced to
the lower of the following:

o a weighted average price determined by assuming all shares of
common stock outstanding prior to the issuance or sale have a
price equal to the conversion price then in effect; and

o the conversion price then in effect reduced in proportion to the
weighted average decrease in the average price per share of the
common stock then outstanding, assuming all shares of common
stock outstanding prior to the issuance or sale have a price
equal to the fair market value of a share of common stock
immediately prior to the issuance or sale.

The issuance of options under employee stock option plans and the
issuance of shares of common stock upon exercise of those options are
excluded from the operation of this provision.

o If the Company issues or sells any convertible securities, warrants or
other rights to purchase additional shares of common stock on terms
such that the aggregate consideration received by the Company upon
such issuance or sale and the subsequent conversion or exercise of the
convertible securities, warrants or rights is less than the current
fair market value of a share of common stock or, if greater, the
exercise price of the convertible preferred stock divided by the
number of shares into which the convertible preferred stock is then
convertible, then the exercise price under the warrant will be reduced
to the lower of the two alternatives set forth in the immediately
preceding bullet point.

o If the Company reorganizes its capital, reclassifies its capital
stock, consolidates or merges with another corporation (where the
Company is not the surviving corporation), or sells substantially all
its assets, then the holders of warrants will be entitled to receive,
upon exercise of the warrants, the number of shares of common stock
or, at the holder's election, the number of shares of preferred stock,
of the successor or acquiring corporation and any other property
receivable in such transaction by a holder of the number of shares of
common stock into which the convertible preferred stock purchasable
upon exercise of the warrant would convert immediately prior to the
event.

Terms of the Convertible Preferred Stock

Number and Series of Convertible Preferred Stock. In connection with the
issuance of the warrants, the Company designated, out of its authorized but
unissued preferred stock, par value $1.00 per share, 806,968 shares of Series
A-1 Convertible Preferred Stock, 459,238 shares of Series A-2 Convertible
Preferred Stock, 371,444 shares of Series A-3 Convertible Preferred Stock and
3,362,350 shares of Series A-4 Convertible Preferred Stock, issuable upon
exercise of the warrants in accordance with their terms. The Series A-1
Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series A-3
Convertible Preferred Stock and Series A-4 Convertible Preferred Stock are
identical except as described below.

Dividends. If the Company declares a dividend payable upon the outstanding
common stock (other than a common stock dividend), the holders of the
convertible preferred stock are entitled to receive an amount of dividends equal
to the amount payable upon the number of shares of common stock into which the
convertible preferred stock could then convert.

Voting Rights. The holders of convertible preferred stock have no right to
vote in any election of directors or on any other matter except as specifically
provided in the terms of the convertible preferred or as otherwise provided by
law.

Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the Company, or in the event of its insolvency, before any distribution or
payment is made to holders of common stock (or holders or any other class or
series of capital stock of the Company hereafter created and made junior to the
convertible preferred stock with respect to liquidation preference), the holders
of the convertible preferred stock will be entitled to receive the greater of
the following:

o the stated liquidation preference of that series of convertible
preferred stock; or

o the amount per share that would have been payable had the holders
converted their shares into common stock immediately prior to the
liquidation, dissolution or winding up.

The stated liquidation preference of the convertible preferred stock is $12.00
per share with respect to the Series A-1 Convertible Preferred Stock, $24.00 per
share with respect to the Series A-2 Convertible Preferred Stock, $36.00 per
share with respect to the Series A-3 Convertible Preferred Stock and $6.00 per
share with respect to the Series A-4 Convertible Preferred Stock, subject to
equitable adjustment for any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other similar event.

Actions Requiring the Consent of Holders of Convertible Preferred Stock.
The consent of the holders of at least 66-2/3% of the shares of each series of
the convertible preferred stock then outstanding is required for any of the
following transactions:

o any amendment or waiver of the Company's articles or bylaws that
adversely affects the rights of the holders of the applicable series
of convertible preferred stock disproportionately to the rights of
other holders of the Company's securities;

o any increase or decrease in the authorized number of shares of common
stock or preferred stock of the Company;

o any authorization or issuance of any new class or series of stock, or
of any other securities convertible into equity securities of the
Company, ranking on a parity with or senior to the convertible
preferred stock in right of redemption, liquidation preference, voting
or dividends or any increase in the authorized number of any such new
class or series;

o any redemption or repurchase of common stock (other than acquisitions
pursuant to agreements permitting the Company to repurchase shares
upon termination of services to the Company or the Company's exercise
of a right of first refusal upon a proposed transfer);

o any change in the authorized number of directors of the Company;

o any liquidation or dissolution of the Company;

o any merger or consolidation of the Company or a significant subsidiary
or any other corporate reorganization in which the shareholders of the
Company immediately prior to the transaction own less than 50% of the
Company's voting power immediately thereafter, or any transaction or
series of transactions in which more than 50% of the Company's voting
power is transferred;

o any sale or other disposition of substantially all of the assets,
property or business of the Company; and

o any sale or other disposition of substantially all of the stock or
assets of any significant subsidiary of the Company.

Conversion Rights. The convertible preferred stock is convertible into
shares of common stock at any time by any holder other than an affiliate of
Centre Solutions (Bermuda), Limited (which would accordingly preclude conversion
by the initial holder of the warrants if it exercises the warrants). Each share
of convertible preferred stock is initially convertible into three shares of
common stock according to a formula, subject to adjustment in the same
circumstances provided in the warrants, except that the terms of the convertible
preferred stock are to be construed with the terms of the warrants to avoid
making more than one adjustment for any event.

Restrictions on Transfer; Registration Rights. The warrants were issued in
a transaction that was not registered under the Securities Act of 1933, as
amended (the "1933 Act") pursuant to the exemption for transactions not
involving any public offering provided by Section 4(2) of the 1933 Act.
Accordingly, the warrants, the shares of convertible preferred stock issuable
upon exercise of the warrants, and the shares of common stock issuable upon
conversion of the convertible preferred stock are "restricted securities" as
such term is defined in Rule 144 under the 1933 Act and may not be sold without
registration under the 1933 Act in absence of an available exemption. In
connection with the issuance of the warrants, however, the Company entered into
an agreement with the holder of the warrants granting holders of securities
representing at least 15% of the common stock issuable upon exercise of the
warrants and conversion of the convertible preferred stock the right to require
the Company to register, on not more than two occasions, such shares of common
stock as the holders request to have registered for sale. The Company also
granted the holders of the warrants the right to include in any other
registration statement filed by the Company for the purpose of conducting a
public offering, or to register for sale upon Form S-3 under the 1933 Act, any
shares of common stock acquired through exercise of the warrants and conversion
of the convertible preferred stock.

Other Provisions. There is no restriction on the repurchase or redemption
of the convertible preferred stock while there is any arrearage in the payment
of dividends and no sinking fund.

While the warrants and convertible preferred shares contain certain
anti-dilution provisions, the following table provides a hypothetical example of
the number of shares of common stock issuable upon conversion of the convertible
preferred stock under the respective tranches of the warrants:

Tranche Shares Outstanding Number Shares Outstanding Cumulative
Prior to Exercise of Shares Following Conversion Percentage
Issuable of Total
Upon
Exercise
1 20,000,000 1,738,000 21,738,000 8.00%
2 21,738,000 989,000 22,727,000 12.00%
3 22,727,000 800,000 23,527,000 14.99%
4 23,527,000 7,242,000 30,769,000 35.00%

The above table assumes that the number of shares of fully-diluted Company
common stock issued and outstanding is 20,000,000 immediately prior to the time
the first tranche of warrants is exercised and that no shares of common stock or
securities convertible into or exercisable for common stock have been issued
other than the warrants. The above table does not reflect the number of shares
of common stock that would be represented by the warrants in the event that the
Company issues common stock in connection with a public offering, private
placement, merger or acquisition or any other issuance by the Company of common
stock or securities exercisable for or convertible into common stock.

At the Meeting, as required by the rules applicable to companies listed on
the New York Stock Exchange, the Company seeks the ratification and approval of
the shareholders of the issuance of the warrants, the convertible preferred
stock issuable upon exercise of the warrants and the common stock issuable upon
conversion of the convertible preferred stock.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION AND
APPROVAL OF THE ISSUANCE OF WARRANTS, CONVERTIBLE PREFERRED STOCK
AND COMMON STOCK AS AGREED IN CONNECTION WITH THE REINSURANCE
AGREEMENT WITH CENTRE SOLUTIONS (BERMUDA), LIMITED.

PROPOSAL IV - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------------

The Board of Directors, upon recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the independent public
accountants of Penn Treaty and its subsidiaries for the year ending December 31,
2002. In taking this action, the members of the Board and the Audit Committee
considered carefully PricewaterhouseCoopers' performance for the Company in that
capacity since 1986, its independence with respect to the services to be
performed and its general reputation for adherence to professional auditing

standards. A representative of PricewaterhouseCoopers LLP is expected to be
present at the Meeting for the purpose of making a statement if he so desires
and to respond to appropriate questions. If the shareholders do not approve this
proposal, the Audit Committee and the Board of Directors will consider the
matter of the appointment of independent public accountants.

Audit Fees
The aggregate fees billed by PricewaterhouseCoopers for professional
services required for the audit of the Company's annual financial statements for
the year ended December 31, 2001 and the reviews of the interim financial
statements included in the Company's Forms 10-Q for the year ended December 31,
2001 were approximately $541,700.

Financial Information Systems Design and Implementation Fees
No fees were billed by PricewaterhouseCoopers for financial information
systems design and implementation services for the year ended December 31, 2001.

All Other Fees
The aggregate fees billed by PricewaterhouseCoopers for additional
professional services rendered by PricewaterhouseCoopers for the year ended
December 31, 2001, other than for the services described above, were $246,520.
Prior to engaging PricewaterhouseCoopers for these additional services, the
Audit Committee considered whether the provision of these services was
compatible with maintaining PricewaterhouseCoopers' independence.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS FOR PENN TREATY AND ITS SUBSIDIARIES FOR THE
YEAR ENDING DECEMBER 31, 2002.

Executive Compensation and Other Matters
----------------------------------------

Summary Compensation Table

The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to Penn Treaty for the
fiscal years ended December 31, 1999, 2000 and 2001 of those persons who, during
2001, (i) served as Penn Treaty's Chief Executive Officer or (ii) were Executive

Officers (other than the Chief Executive Officer) whose total annual salary and
bonus exceeded $100,000:

Long-Term
Annual Compensation Compensation
------------------------------------- --------------------
Name and Salary Bonus Other Securities All Other
Underlying Options Compensation
Principal Position Year ($) ($) ($)(1) (#) ($) (2)
---- --- --- ------ --- -------
------------------------------

Irving Levit 2001 545,000 85,000 3,200 241,455 7,875(3)
Chairman, President and 2000 500,000 80,000 1,600 40,000 7,875(3)
Chief Executive Officer 1999 475,000 80,000 1,600 0 7,500(3)

Cameron B. Waite 2001 146,250 15,000 3,200 8,000 4,838
Chief Financial Officer 2000 129,000 11,000 1,600 6,000 4,200
1999 111,199 8,000 1,600 0 3,576

James Heyer 2001 127,500 12,000 2,400 37,500 4,185
Chief Operating Officer 2000 114,000 11,000 1,600 12,000 3,750
1999 96,783 8,000 1,600 0 3,143

Michael F. Grill 2001 90,000 22,000 2,800 49,919 3,360
Treasurer 2000 87,500 20,000 1,600 5,000 3,225
1999 84,550 18,000 1,600 0 3,077

A. J. Carden 2001 85,000 14,000 2,800 50,000 2,970
Executive Vice President 2000 85,173 14,000 1,600 4,000 2,975
1999 100,297 14,000 1,600 0 3,429

William W. Hunt(4) 2001 93,462 5,000 0 30,000 0
Senior Vice President

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

(1) Represents Directors' fees of $400 for each regular board meeting and
board meeting of the insurance company subsidiaries attended.
(2) Represents company contributions to Penn Treaty's 401(k) Plan on
behalf of each of the named individuals.
(3) Excludes cash overriding commissions and direct commissions totaling
approximately $543,000, $551,000 and $544,000 paid to IMC by Penn
Treaty in 1999, 2000 and 2001, respectively, in connection with
policies written for Penn Treaty. See "Certain Relationships and
Related Transactions."
(4) Mr. Hunt began his employment with Penn Treaty on May 14, 2001.

Option Grants in Last Fiscal Year

The following table sets forth information concerning grants of stock
options during the fiscal year ended December 31, 2001 to each of the Company's
executive officers named in the Summary Compensation Table.

Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
------------------------------------------------ ----------------------

% of Total
Options Granted
Options to Employees Exercise or Expiration 5% 10%
Name Granted(#)(2) in Fiscal Year Base Price($) Date ($) ($)
---- ------------- -------------- ------------- ---------- --- ---

William W. Hunt 30,000 5.0% 3.40 8/1/11 64,147 162,562

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

(1) The dollar amounts set forth under these columns are the result of
calculations made at assumed 5% and 10% appreciation rates as required by the
Securities and Exchange Commission regulations and are not intended to indicate
future price appreciation, if any, of the Company's common stock.

(2) The options were granted at an exercise price equal to the fair market value
of the Company's common stock on July 23, 2001. 10,000 of the options granted to
Mr. Hunt were exercisable on July 31, 2001 and 20,000 become exercisable on the
first anniversary of the date of grant.

Compensation Committee Report on Repricing of Options

On July 30, 2001, the Board of Directors approved a plan pursuant to which
Penn Treaty granted replacement options to its employees for all existing
options granted under its existing fixed option plans. The options that were
replaced were granted between July 14, 1989 and May 26, 2000 at exercise prices
ranging from $8.70 to $35.475 per share. The new options have exercise prices
that are above the market price of the Company's stock at the time of repricing
and are based upon a formula relating to the exercise price of the original
option grant in relationship to the fair market value at the time of repricing.

In deciding whether to reprice the options, the Board considered the fact
that the decline of the market price of Penn Treaty common stock substantially
impaired the effectiveness of the existing options as a means of attracting and
retaining qualified executive and non-executive officers and employees and
providing appropriate incentives to the Penn Treaty executive and non-executive
officers and employees. The Board also considered the repricing's potential
dilutive impact on shareholders, the Company's current finances, the states of
the employee morale and the Company's business plans. After consideration of all
of the foregoing, the Compensation Committee believed that repricing the
existing options was in the best interests of Penn Treaty and its shareholders.

The following table sets forth information concerning the replacement
grants of stock options during the fiscal year ended December 31, 2001 to the
Company's executive officers:

Ten-Year Option/SAR Repricings
------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock at Price At Option Term
Options/ Time of Time of Remaining at
SARs Repricing or Repricing or New Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended (#) ($) ($) Price ($) Amendment in Years
---- ---- ----------- ------------ ------------ --------- ------------

Irving Levit 8/1/01 5,265 $3.11 $ 8.70 $ 3.40 1
Chairman, 8/1/01 44,850 $3.11 $ 9.81 $ 3.74 1
President, Chief 8/1/01 26,340 $3.11 $12.28 $ 4.682 7
Executive Officer 8/1/01 48,000 $3.11 $13.61 $ 5.189 4
8/1/01 40,000 $3.11 $19.25 $ 7.34 9
8/1/01 48,000 $3.11 $22.55 $ 8.598 5
8/1/01 29,000 $3.11 $35.475 $13.526 6

Cameron Waite 8/1/01 6,000 $3.11 $19.25 $ 7.34 9
Chief Financial 8/1/01 2,000 $3.11 $32.25 $12.297 6
Officer

James Heyer 8/1/01 7,500 $3.11 $12.375 $ 4.719 4
Chief Operating 8/1/01 12,000 $3.11 $19.25 $ 7.34 9
Officer 8/1/01 12,000 $3.11 $20.50 $ 7.817 5
8/1/01 6,000 $3.11 $32.25 $12.297 6

Michael Grill 8/1/01 7,419 $3.11 $11.167 $ 4.258 1
Treasurer 8/1/01 15,000 $3.11 $12.375 $ 4.719 4
8/1/01 5,000 $3.11 $19.25 $ 7.34 9
8/1/01 15,000 $3.11 $20.50 $ 7.817 5
8/1/01 7,500 $3.11 $32.25 $12.297 6

A. J. Carden 8/1/01 18,000 $3.11 $12.375 $ 4.719 4
Executive 8/1/01 4,000 $3.11 $19.25 $ 7.34 9
Vice President 8/1/01 18,000 $3.11 $20.50 $ 7.817 5
8/1/01 10,000 $3.11 $32.25 $12.297 6

Alexander M. Clark
Francis R. Grebe
Domenic P. Stangherlin

Aggregated Option Exercises and Year-End Option Values

The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 2001 by Penn
Treaty's executive officers named in the Summary Compensation Table. The table
also sets forth the number of shares covered by exercisable and unexercisable
options held by such executives on December 31, 2001 and the aggregate gains
that would have been realized had these options been exercised on December 31,
2001, even though these options were not exercised, and the unexercisable
options could not have been exercised, on December 31, 2001.

Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options
Acquired on Realized Options at Fiscal Year-End(#) at Fiscal Year-End ($)(2)
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------ ------------- -------------- ----------- -------------

Irving Levit 0 0 0 241,455 0 232,204

Cameron B. Waite 0 0 0 8,000 0 0

Jim Heyer 0 0 0 37,500 0 12,236

Michael F. Grill 0 0 0 49,919 0 39,993

A.J. Carden 0 0 0 50,000 0 29,367

William W. Hunt 0 0 10,000 20,000 9,500 19,000

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

(1) The value realized represents the difference between the fair market
value per share of our common stock on the date of exercise and the per
share exercise price, multiplied by the applicable number of options.

(2) These values represent the difference between the closing price per share
on The New York Stock Exchange on December 31, 2001 ($6.35) and the per
share exercise price of the option.

Pension Plan and 401(k) Plan

On August 1, 1996, Penn Treaty adopted a 401(k)retirement plan, covering
substantially all employees with one year of service. Under the plan,
participating employees may contribute up to 15% of their annual salary on a
pre-tax basis, and Penn Treaty equally matches employee contributions up to the
first 3% of the employee's salary. The Penn Treaty and employee portions of the
plan vest immediately. Penn Treaty's expense in 2001 under the plan was
$167,000. Penn Treaty may elect to make a discretionary contribution to the
plan, which will be contributed proportionately to each eligible employee. Penn
Treaty did not make a discretionary contribution in 2001.

Incentive Stock Option Plans

The shareholders of Penn Treaty adopted an Incentive Stock Option Plan (the
"Plan") in March 1987. The Plan, as amended by shareholder action on May 25,
1990, May 28, 1993, and May 23, 1997, provided for the granting of options to
purchase up to 1,200,000 shares of our common stock. The Plan has been replaced
by the 1998 Employee Non-Qualified Incentive Stock Option Plan (the "1998 Plan")
and all options under the Plan were forfeited and replaced under the 1998 Plan
in 2001. No new options may be granted under the Plan.

The shareholders of Penn Treaty adopted the 1998 Plan in May 1998. The 1998
Plan authorizes Penn Treaty to grant "incentive stock options" under Section 422
of the Internal Revenue Code, and non-qualified stock options, covering up to an
aggregate of 600,000 shares of our common stock. The purpose of the 1998 Plan is
to enable Penn Treaty to offer officers, directors and employees of Penn Treaty
and its subsidiaries options to acquire equity interests in Penn Treaty, thereby
attracting, retaining and rewarding such persons, and strengthening the
mutuality of interests between such persons and our shareholders. The maximum
allowable term of each option granted under the 1998 Plan is ten years (five
years in the case of holders of more than 10% of the combined voting power of
all classes of outstanding stock), and the options become exercisable in varying
equal, annual installments commencing one year from the option grant date. In
August 2001, 596,000 stock options were granted under the 1998 Plan.

As of April 8, 2002, no stock options have been canceled and no stock
options have been exercised.

Agent Stock Option Plan

In October 1994, the Board of Directors of Penn Treaty authorized a stock
option plan for its agents (the "Agent Plan"). The Agent Plan, adopted by the
Board of Directors in May 1995, provides for the grant of options to purchase up
to 300,000 shares of common stock and is designed to reward Penn Treaty's agents
by providing for the grant of options to purchase common stock to agents who
attain certain sales objectives determined by the Board of Directors. The
exercise price of all options granted under the Agent Plan may not be less than
the fair market value of the shares on the date of grant. The maximum allowable
term of each option is ten years, and the options become exercisable in four
equal annual installments commencing one year from the option grant date. Under
the Agent Plan, stock options have been granted and are outstanding to date with
respect to 59,700 shares. Prices of these options range from $12.63 to $32.25
per share. No options were granted under the Agent Plan during 1999, 2000 or
2001.

Change in Control Agreements

Penn Treaty has entered into Change in Control Agreements with each of the
executive officers named in the Summary Compensation Table. Under these
agreements, if Penn Treaty merges into another entity or ownership of the voting
control of Penn Treaty otherwise changes and, as a result of such change in
control, any of the named executive officers are terminated or their positions
or work locations are materially changed at any time during the three year
period (five years in the case of the Company's President and Chief Executive
Officer) after the change in control, they will be entitled to receive a lump
sum payment of their base salary through the end of the three-year period (or
five-year period in the case of the Company's President and Chief Executive
Officer) and they shall be entitled to continue to receive certain other
insurance and retirement benefits for the remainder of the three-year period (or
five-year period in the case of the Company's President and Chief Executive
Officer).

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee of the Board of Directors during
2001 were Mr. Clark, Mr. Grebe and Mr. Stangherlin, who are non-employee
directors. Mr. Stangherlin also served as the Secretary of Penn Treaty until
1999 and of the Agency, PTNA, ANIC and AINIC until 2000.

Audit Committee Report
----------------------

With respect to the audited financial statements of Penn Treaty and its
subsidiaries for the year ended December 31, 2001, the Audit Committee:

o has reviewed and discussed the audited financial statements with
management of Penn Treaty;

o has discussed with Penn Treaty's independent accountants matters such
as the quality (in addition to acceptability), clarity, consistency
and completeness of Penn Treaty's financial reporting, as required by
Statement on Auditing Standards No. 61, Communication with Audit
Committee; and

o has received the written disclosures and the letter from the
independent accountants concerning the independent accountants'
independence from Penn Treaty, as required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees,
and has discussed with Penn Treaty's independent accountants the
independent accountants' independence.

Based on the review and discussions described above, the Audit Committee has
ratified the inclusion by the Board of Directors of the audited financial
statements in Penn Treaty's Annual Report on Form 10-K for the year ended
December 31, 2001 for filing with the SEC.
Alexander M. Clark
Francis R. Grebe
Domenic P. Stangherlin

Compensation Committee Report on Executive Compensation
-------------------------------------------------------

Penn Treaty's Executive Compensation Program is administered by the
Compensation Committee (the "Committee"), a committee of the Board of Directors
consisting of independent non-employee directors. The primary functions of the
Committee are to review and evaluate the performance and leadership of the Chief
Executive Officer and all other executive officers and to recommend compensation
amounts to the Board of Directors. In 2001, the Committee compared all executive
compensation with industry and regional executive compensation levels and
believes that Penn Treaty's compensation levels compare conservatively to other
comparable executive positions. The Board of Directors accepted and adopted all
of the Committee's recommendations concerning executive compensation amounts
during 2001.

The Committee seeks to:

o provide compensation that is closely linked to Company and individual
performance;

o align the interests of Penn Treaty's executives with those of its
shareholders through award opportunities that can result in ownership
of common stock; and

o ensure that compensation is sufficiently competitive to attract and
retain high quality executive talent.

Consistent with these objectives, the Committee employs a system of
quantitative measures and qualitative assessments in evaluating and measuring
executive officer performance. Quantitative measures include earnings
performance, return on assets and growth of revenues. Qualitative assessments
include the quality and measured progress of the operations of Penn Treaty and
the success of strategic actions taken.

In addition to company-wide measures of performance, the Committee
considers performance factors particular to each executive officer, such as the
performance of the departments for which such officer had management
responsibility, individual managerial accomplishments and contribution to the
achievement of corporate goals.

CEO Compensation

In accordance with the Committee's general practice and Penn Treaty's
compensation policies, Mr. Levit's compensation for the 2001 fiscal year was
based principally upon Mr. Levit's performance in directing Penn Treaty. The
increases in Mr. Levit's salary and the amount of his bonus were determined in
the Committee's sole discretion after its consideration of competitive data, the
Board's assessment and recognition of Mr. Levit's performance during 2001,
especially considering the significant challenges raised by the regulatory
posture of the Company and the reinsurance transaction with Centre Solutions.

Alexander M. Clark
Francis R. Grebe
Domenic P. Stangherlin

Principal Shareholders
----------------------

The following table sets forth, as of April 17, 2002, information with
respect to the beneficial ownership of our common stock by (i) each person known
to Penn Treaty to own 5% or more of the outstanding shares of common stock, (ii)
each of Penn Treaty's Directors, (iii) Penn Treaty's Chief Executive Officer and
other most highly compensated Executive Officers, and (iv) all Directors and
Executive Officers as a group:

Shares Percent of
Name and Address(1) Beneficially Owned(2) Ownership
------------------- --------------------- ---------
Irving Levit (3) 2,451,895 12.3%
Wellington Management Co., LLP(4) 1,593,082 8.0%
Jack D. Baum (5) 50,658 *
A. J. Carden (6) 50,000 *
Alexander M. Clark 5,000 *
Francis R. Grebe - *
Michael F. Grill (7) 49,919 *
James Heyer (8) 37,694 *
Gary E. Hindes (9) 11,500 *
William Hunt, Jr. (10) 10,000 *
Matthew W. Kaplan - *
Domenic P. Stangherlin 87,963 *
Cameron B. Waite (11) 9,000 *

All Directors and Executive
Officers as a group 2,763,629 13.9%
(12 persons) (12)

* Less than 1%
---------------------

(1) Unless otherwise noted, the address of each person named above is in care
of us.

(2) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. Shares of common stock subject to
options currently exercisable or exercisable within 60 days of April 17,
2002 are deemed outstanding for computing the percentage beneficially owned
by such holder but are not deemed outstanding for purposes of computing the
percentage beneficially owned by any other person. Except as otherwise
indicated, Penn Treaty believes that the beneficial owners of the common
stock listed above, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable, and that there are no other
affiliations among the shareholders listed in the table.

(3) Includes 46,350 shares held by a private foundation of which Mr. Levit is
an officer and director, 45,007 shares held by Mr. Levit as trustee of a
retirement account, 147,167 shares held by Mr. Levit as co-trustee of an
irrevocable trust for Mr. Levit's children and exercisable options to
purchase 241,455 shares of common stock. Excludes 46,000 shares held by Mr.
Levit's wife as to which he disclaims beneficial ownership and 59,233
shares held by other family members as to which he also disclaims
beneficial ownership.

(4) According to the Schedule 13G filed with the SEC by Wellington Management
Company, LLP for the year ended December 31, 2001, their principal business
address is 75 State Street, Boston, MA 02109. Wellington Management
Company, LLP reported shared voting power with respect to 920,324 shares
and shared dispositive power with respect to all shares.

(5) Includes exercisable options to purchase 50,577 shares of common stock.

(6) Consists of exercisable options to purchase shares of common stock.

(7) Consists of exercisable options to purchase shares of common stock.

(8) Includes exercisable options to purchase 37,500 shares of common stock.

(9) Includes 5,000 shares owned by Fallen Angels Fund, L.P., a limited
partnership of which Mr. Hindes has sole voting power as the managing
member of the general partnership, 1,500 shares held by Mr. Hindes' wife as
to which he disclaims beneficial ownership and 1,200 shares held by Mr.
Hindes' children as to which he disclaims beneficial ownership.

(10) Consists of exercisable options to purchase shares of common stock.

(11) Includes exercisable options to purchase 8,000 shares of common stock.

(12) Includes exercisable options held by members of the group to purchase
447,451 shares of common stock.

Performance Graph

The following graph compares the five-year cumulative total return for Penn
Treaty's common stock with the comparable cumulative return of two indices. The
NYSE Composite provides some indication of the performance of the overall stock
market, and the S & P Insurance Composite reflects the performance of insurance
company stock generally.

[In the printed document there appears a graph with the following plot points
depicted.]

1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----

PTA STOCK $ 100.00 $ 122.11 $ 108.27 $ 56.62 $ 63.19 $ 24.42
NYSE COMPOSITE $ 100.00 $ 138.12 $ 164.03 $ 182.34 $ 187.53 $ 171.39
S&P INSURANCE INDEX $ 100.00 $ 153.06 $ 159.48 $ 166.53 $ 233.55 $ 203.76

(1) Assumes a $100.00 investment on December 31, 1996 in the Company's common
stock, and in each of the indices shown. The total return assumes reinvestment
of all dividends.

INCORPORATION OF DOCUMENTS BY REFERENCE
---------------------------------------

The following information is incorporated by reference from the Company's
Annual Report on Form 10-K, a copy of which is being delivered to Penn Treaty's
shareholders in conjunction with this Proxy Statement: Financial Statements and
Notes to Consolidated Financial Statements at pages F-1 to F-31; Management's
Discussion and Analysis of Financial Condition and Results of Operations at
pages 34 to 37; Quantitative and Qualitative Disclosures About Market Risk at
pages 47 to 48; and Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure at page 49.

OTHER MATTERS
-------------

At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the Annual
Meeting is that which is presented above. If any other matter or matters are
properly brought before the Annual Meeting, or any adjournment or postponement,
it is the intention of the persons named in the accompanying proxy card to vote
proxies on such matters in accordance with their judgment.

By Order of the Board of Directors,

/s/ Sandra A. Kotsch
----------------------------------
Sandra A. Kotsch, Secretary

Allentown, Pennsylvania
April 29, 2001

APPENDIX "A"

PENN TREATY AMERICAN CORPORATION
2002 EMPLOYEE INCENTIVE STOCK OPTION PLAN

ARTICLE I

Purpose

The purpose of the 2002 Employee Stock Option Plan (the "Plan") is to
enable Penn Treaty American Corporation (the "Company") to offer its officers,
directors and employees of the Company and its Subsidiaries options to acquire
equity interests in the Company, thereby attracting, retaining and rewarding
such persons, and strengthening the mutuality of interests between such persons
and the Company's shareholders.

ARTICLE II

Definitions

For purposes of the Plan, the following terms shall have the following
meanings:

2..1 "Award" shall mean an award under the Plan of a Stock Option.

2..1 "Board" shall mean the Board of Directors of the Company.

2..2 "Code" shall mean the Internal Revenue Code of 1986, as amended.

2..3 "Committee" shall mean the Compensation Committee of the Board,
consisting of two or more members of the Board.

2..4 "Common Stock" shall mean the Common Stock, par value $.10 per share,
of the Company.

2..5 "Disability" shall mean a disability that results in a Participant's
Termination of Employment with the Company or a Subsidiary, as determined
pursuant to standard Company procedures.

2..6 "Fair Market Value" for purposes of the Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the average of the high and low sales
prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, The Nasdaq Stock Market
("NASDAQ"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on NASDAQ, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.

2..7 "Incentive Stock Option" shall mean any Stock Option awarded under the
Plan intended to be and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.

2..8 "Non-Qualified Stock Option" shall mean any Stock Option granted under
the Plan that is not an Incentive Stock Option.

2..9 "Participant" shall mean an employee to whom an Award has been
granted.

2..10 "Stock Option" or "Option" shall mean any option to purchase shares
of Common Stock granted pursuant to Article VI of the Plan.

2..11 "Subsidiary" shall mean any subsidiary of the Company, 80% or more of
the voting stock of which is owned, directly or indirectly, by the Company.

2..12 "Termination of Employment" shall mean a termination of employment
with the Company and all of its Subsidiaries. Whether authorized leave of
absence or absence for military or governmental service shall constitute
termination of employment, for the purposes of the Plan, shall be determined by
the Committee, which determination shall be final and conclusive.

ARTICLE III

Administration

3..1 The Committee. The Plan shall be administered and interpreted by the
Committee.

3..2 Awards. The Committee shall have full authority to grant, pursuant to
the terms of the Plan, Stock Options to persons eligible under Article V. In
particular, the Committee shall have the authority:

(a) to select the persons to whom Stock Options may from time to time
be granted;

(b) to determine whether and to what extent Incentive Stock Options
and Non-Qualified Stock Options, or any combination thereof, are to be
granted to one or more persons eligible to receive Awards under Article V;

(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder (including, but not
limited to, the option price, the option term, and provisions relating to
any restriction or limitation, any vesting schedule or acceleration, or any
waiver with respect to the Award).

3..3 Guidelines. Subject to Article VII hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan as it shall, from time to time, deem advisable;
to interpret the terms and provisions of the Plan and any Award granted under
the Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent it shall deem necessary to carry the Plan into effect.
Notwithstanding the foregoing, no action of the Committee under this Section 3.3
shall impair the rights of any Participant without the Participant's consent,
unless otherwise required by law.

3..4 Decisions Final. Any decision, interpretation or other action made or
taken in good faith by the Committee arising out of or in connection with the
Plan shall be final, binding and conclusive on the Company, all Participants and
their respective heirs, executors, administrators, successors and assigns.

ARTICLE IV

Share Limitation

4..1 Shares. The maximum aggregate number of shares of Common Stock that
may be issued under the Plan is 2,000,000 (subject to any increase or decrease
pursuant to Section 4.3), which may be either authorized and unissued shares of
Common Stock or issued Common Stock reacquired by the Company. If any Option
granted under the Plan shall expire, terminate or be canceled for any reason
without having been exercised in full, the number of unpurchased shares shall
again be available for the purposes of the Plan.

4..2 Individual Limit. No employee may be granted Awards covering more than
250,000 shares of Common Stock (subject to increase or decrease pursuant to
Section 4.3) during any calendar year.

4..3 Changes.

(a) The number of shares of Common Stock covered by each outstanding
Stock Option, and the exercise price per share in each such Option, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a subdivision
or consolidation of shares or the payment of a stock dividend (but only on
the Common Stock) or any other increase or decrease in the number of such
shares effected without receipt of consideration by the Company.

(b) If the Company shall be the surviving corporation in any merger or
consolidation, each outstanding Stock Option shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock
subject to the Stock Option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the
Company is not the surviving corporation, shall cause each outstanding

Stock Option to terminate, provided that each optionee shall, in such
event, if a period of 12 months from the date of the granting of the Stock
Option shall have expired, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which the Company
is not the surviving corporation, to exercise his Stock Option in whole or
in part without regard to the installment provisions of Section 6.4(d) of
the Plan. Notwithstanding the above provisions upon a merger or
consolidation, a Stock Option will not terminate if assumed by the
surviving or acquiring corporation, or its parent, and in the case of an
Incentive Stock Option the circumstances of such assumption are not deemed
a modification of the Incentive Stock Option within the meaning of Sections
424(a) and 424(h)(3)(A) of the Code.

(c) In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any
such change shall be deemed to be the Common Stock within the meaning of
the Plan.

(d) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that no Incentive Stock Option granted pursuant to the Plan shall
be adjusted in a manner that causes the Incentive Stock Option to fail to
continue to qualify as an incentive stock option within the meaning of
Section 422 of the Code.

(e) The grant of a Stock Option pursuant to the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.

ARTICLE V

Eligibility

All officers, directors and employees of the Company and its Subsidiaries are
eligible to be granted Stock Options under the Plan.

ARTICLE VI

Stock Options

6..1 Options. Each Stock Option granted under the Plan shall be either an
Incentive Stock Option or a Non-Qualified Stock Option.

6..2 Grants. The Committee shall have the authority to grant to any person
eligible under Article V one or more Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options. To the extent that any Stock
Option does not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such Stock
Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified Stock Option.

6..3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under Section
422 of the Code, or, without the consent of the Participants affected, to
disqualify any Incentive Stock Option under such Section 422.

6..4 Terms of Options. Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:

(a) Notice of Grant of Stock Option. Each Stock Option shall be
evidenced by, and subject to the terms of, a Notice of Grant of Stock
Option executed by the Company and the Participant. The Notice of Grant of
Stock Option shall specify whether the Option is an Incentive Stock Option
or a Non-Qualified Stock Option, the number of shares of Common Stock
subject to the Stock Option, the option price, the option term, and the
other terms and conditions applicable to the Stock Option.

(b) Option Price. The option price per share of Common Stock
purchasable upon exercise of a Stock Option shall be determined by the
Committee at the time of grant, but shall be not less than 100% of the Fair
Market Value of the Common Stock on the date of grant if the Stock Option
is intended to be an Incentive Stock Option. The Committee may, in its
discretion, grant Non-Qualified Stock Options at an option price per share
which is below the Fair Market Value of the Common Stock on the date of
grant.

(c) Option Term. The term of each Stock Option shall be fixed by the
Committee at the time of grant, but no Stock Option shall be exercisable
more than ten years after the date it is granted.

(d) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Committee at the time of grant; provided, however, that no Stock Option
shall be exercisable in whole or in part prior to 12 months from the date
it is granted; and provided further, that the Committee may waive any
installment exercise or waiting period provisions, in whole or in part, at
any time after the date of grant, based on such factors as the Committee
shall deem appropriate in its sole discretion.

(e) Method of Exercise. Subject to such installment exercise and
waiting period provisions as may be imposed by the Committee, Stock Options
may be exercised in whole or in part at any time during the option term by
delivering to the Company written notice of exercise specifying the number
of shares of Common Stock to be purchased and the option price therefor;
provided, however, that not less than 50 shares may be purchased at any one
time unless the number purchased is the total number at the time
purchasable under the Stock Option. The notice of exercise shall be
accompanied by payment in full of the option price and, if requested, by
the representation described in Section 9.2. Payment of the option price
may be made (i) in cash or by check payable to the Company, (ii) to the
extent determined by the Committee on or after the date of grant, in shares
of Common Stock duly owned by the Participant (and for which the

Participant has good title free and clear of any liens and encumbrances) or
(iii) by reduction in the number of shares of Common Stock issuable upon
such exercise, based, in each case, on the Fair Market Value of the Common
Stock on the date of exercise. In addition, the Committee shall have the
discretion to include in any Option grant the right of the Participant (A)
to receive a loan from the Company to pay the exercise price of the Stock
Option, with such terms as shall not cause the Stock Option, if an
Incentive Stock Option, to become disqualified under Section 422 of the
Code or amendments thereto, and/or (B) to receive such assistance from the
Company in obtaining a loan from a financial institution as is necessary in
the sole discretion of the Committee. Upon payment in full of the option
price and satisfaction of the other conditions provided herein, a stock
certificate representing the number of shares of Common Stock to which the
Participant is entitled shall be issued and delivered to the Participant.

(f) Death. In the event of a Participant's Termination of Employment
by reason of death, any Stock Option held by such Participant which was
exercisable on the date of death may thereafter be exercised by the legal
representative of the Participant's estate until the earlier of twelve
months after the date of death or the expiration of the stated term of such
Stock Option, and any Stock Option not exercisable on the date of death
shall be forfeited.

(g) Disability. In the event of a Participant's Termination of
Employment by reason of Disability, any Stock Option held by such
Participant which was exercisable on the date of such Termination of
Employment may thereafter be exercised by the Participant until the earlier
of twelve months after such date or the expiration of the stated term of
such Stock Option, and any Stock Option not exercisable on the date of such
Termination of Employment shall be forfeited. If an Incentive Stock Option
is exercised after the expiration of the exercise period that applies for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.

(h) Termination of Employment. Unless otherwise determined by the
Committee on or after the date of grant, in the event of a Participant's
Termination of Employment other than by reason of Death or Disability, all
Stock Options held by such Participant on the date of such Termination of
Employment shall be forfeited as of such date.

(i) Non-Transferability of Options. No Stock Option shall be
transferable by the Participant otherwise than by will or by the laws of
descent and distribution, to the extent consistent with the terms of the
Plan and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.

(j) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the date of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year under the
Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) exceeds
$100,000, such Options shall be treated as Options which are not Incentive
Stock Options.

Should the foregoing provisions not be necessary in order for the
Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
shareholders of the Company.

(k) Ten-Percent Shareholder Rule. Notwithstanding any other provision
of the Plan to the contrary, no Incentive Stock Option shall be granted to
any person who, immediately prior to the grant, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock
of the Company or any subsidiary or parent corporation (within the meaning
of Section 424 of the Code), unless the option price is at least 110% of
the Fair Market Value of the Common Stock on the date of grant and the
Option, by its terms, expires no later than five years after the date of
grant.

6..5 Rights as Shareholder. A Participant shall not be deemed to be the
holder of Common Stock, or to have any of the rights of a holder of Common
Stock, with respect to shares subject to the Option, unless and until the Option
is exercised and a stock certificate representing such shares of Common Stock is
issued to the Participant.

ARTICLE VII

Termination or Amendment

7..1 Termination or Amendment of Plan. The Committee may at any time amend,
discontinue or terminate the Plan or any part thereof (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirement referred to in Article IX); provided, however, that, unless
otherwise required by law, the rights of a Participant with respect to Awards
granted prior to such amendment, discontinuance or termination may not be
impaired without the consent of such Participant and, provided further that, the
Company will seek the approval of the Company's shareholders for any amendment
if such approval is necessary to comply with the Code, Federal or state
securities law or any other applicable rules or regulations.

7..2 Amendment of Options. The Committee may amend the terms of any Award
previously granted, prospectively or retroactively, but, subject to Article IV,
no such amendment or other action by the Committee shall impair the rights of
any holder without the holder's consent.

ARTICLE VIII

Unfunded Plan

The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payment not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.

ARTICLE IX

General Provisions

9..1 Nonassignment. Except as otherwise provided in the Plan, any Award
granted hereunder and the rights and privileges conferred thereby shall not be
sold, transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Award, right or privilege contrary to the
provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.

9..2 Legend. The Committee may require each person acquiring shares upon
exercise of a Stock Option to represent to the Company in writing that the
Participant is acquiring the shares without a view to distribution thereof. The
stock certificates representing such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.

All certificates representing shares of Common Stock delivered under the
Plan shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.

9..3 Other Plans. Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.

9..4 No Right to Employment. Neither the Plan nor the grant of any Award
hereunder shall give any Participant or other employee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall the Plan
impose any limitation on the right of the Company or any Subsidiary by which a
Participant is employed to terminate such Participant's employment at any time.

9..5 Withholding of Taxes. The Company shall have the right to reduce the
number of shares of Common Stock otherwise deliverable pursuant to the Plan by
an amount that would have a Fair Market Value equal to the amount of all
Federal, state and local taxes required to be withheld, or to deduct the amount
of such taxes from any cash payment otherwise to be made to the Participant. In
connection with such withholding, the Committee may make such arrangements as
are consistent with the Plan as it may deem appropriate.

9..6 Listing and Other Conditions.

(a) If the Common Stock is listed on a national securities exchange or
The Nasdaq Stock Market, the issuance of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on
such exchange or NASDAQ. The Company shall have no obligation to issue any
shares of Common Stock unless and until such shares are so listed, and the
right to exercise any Option shall be suspended until such listing has been
effected.

(b) If at any time counsel to the Company shall be of the opinion that
any sale or delivery of shares of Common Stock upon exercise of a Stock
Option is or may in the circumstances be unlawful or result in the
imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such
sale or delivery, or to make any application or to effect or to maintain
any qualification or registration under the Securities Act of 1933, as
amended, or otherwise with respect to shares of Common Stock or Awards, and
the right to exercise any Option shall be suspended until, in the opinion
of such counsel, such sale or delivery shall be lawful or shall not result
in the imposition of excise taxes.

(c) Upon termination of any period of suspension under this Section
9.6, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Option.

9..7 Governing Law. The Plan and actions taken in connection herewith shall
be governed and construed in accordance with the laws of the Commonwealth of
Pennsylvania.

9..8 Construction. Wherever any words are used in the Plan in the masculine
gender they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.

9..9 Liability of the Board and the Committee. No member of the Board or
the Committee nor any employee of the Company or any of its subsidiaries shall
be liable for any act or action hereunder, whether of omission or commission, by
any other member or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated or, except in circumstances
involving bad faith, gross negligence or fraud, for anything done or omitted to
be done by himself.

9..10 Other Benefits. No payment pursuant to an Award shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or any Subsidiary nor affect any benefits under any other benefit plan
now or hereafter in effect under which the availability or amount of benefits is
related to the level of compensation.

9..11 Costs. The Company shall bear all expenses incurred in administering
the Plan, including expenses related to the issuance of Common Stock upon
exercise of Stock Options.

9..12 Severability. If any part of the Plan shall be determined to be
invalid or void in any respect, such determination shall not affect, impair,
invalidate or nullify the remaining provisions of the Plan which shall continue
in full force and effect.

9..13 Successors. The Plan shall be binding upon and inure to the benefit
of any successor or successors of the Company.

9..14 Headings. Article and section headings contained in the Plan are
included for convenience only and are not to be used in construing or
interpreting the Plan.

ARTICLE X

Term of Plan

10..1 Effective Date. The Plan shall be effective as of the date of its
approval by the Company's shareholders.

10..2 Termination Date. Unless sooner terminated, the Plan shall terminate
ten years after it is adopted by the Board and no Awards may be granted
thereafter. Termination of the Plan shall not affect Awards granted before such
date.

REVOCABLE PROXY
PENN TREATY AMERICAN CORPORATION ANNUAL MEETING OF SHAREHOLDERS - May 24, 2002
This Proxy is solicited on Behalf of the Board of Directors

Alexander M. Clark, Matthew W. Kaplan, and Domenic P. Stangherlin, each with the
power of substitution and with all the powers and discretion the undersigned
would have if personally present, are hereby appointed the Proxy Agents to
represent the undersigned at the Annual Meeting of Shareholders of Penn Treaty
American Corporation (the "Company") to be held at 9:00 A. M., prevailing local
time on May 24, 2002 (the "Meeting"), including any adjournments thereof, and to
vote all shares of stock of the Company which the undersigned is entitled to
vote on all matters that properly come before the Meeting, subject to any
directions indicated in the boxes below. Indicate your vote by placing an (X) in
the appropriate box.

1. PROPOSAL TO ELECT DIRECTORS:[ ]For All[ ]For All Except*[ ]Withhold For All
(*) To withhold authority to vote for any individual nominee, strike a line
through the nominee's name listed below and mark an (X) in the "For All Except"
box.
Name of Nominee:
Francis R. Grebe Michael F. Grill Gary Hindes

2. PROPOSAL TO ADOPT THE 2002 EMPLOYEE STOCK OPTION PLAN:
[ ]FOR [ ]AGAINST [ ]ABSTAIN

3. PROPOSAL TO RATIFY AND APPROVE THE ISSUANCE OF THE WARRANTS, CONVERTIBLE
PREFERRED STOCK AND COMMON STOCK as agreed in connection with the
reinsurance agreement with Centre Solutions (Bermuda), Limited:
[ ]FOR [ ]AGAINST [ ]ABSTAIN

4. PROPOSAL TO APPROVE THE APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLP as the
independent public accountants for the Company and its subsidiaries for the
year ending December 31, 2002.
[ ]FOR [ ]AGAINST [ ]ABSTAIN

5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment(s) or
postponement(s) thereof.

[ ]FOR [ ]AGAINST [ ]ABSTAIN

(over)

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SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AT THE ANNUAL
MEETING IN THE MANNER SPECIFIED. IF PROPERLY EXECUTED AND RETURNED, AND NO
SPECIFICATION IS MADE, VOTES WILL BE CAST "FOR" ALL ITEMS ON THE PROXY. Receipt
of the Notice of the Annual Meeting of Shareholders and the Proxy Statement
dated April 29, 2002 are hereby acknowledged.

IMPORTANT: When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as such. In the case of
JOINT HOLDERS, all should sign.

Dated: ,2002
-------------------------------

------------------------------------------------
(Signature)

PLEASE ACT PROMPTLY. SIGN, DATE & MAIL
YOUR PROXY CARD TODAY.