<PAGE>
 
                                                                   EXHIBIT 10.60

                       AGREEMENT RESPECTING TERMINATION
                       OF EMPLOYEE-EMPLOYER RELATIONSHIP

     THIS AGREEMENT Regarding Termination of Employee-Employer Relationship
(this "Agreement") is made as of the 4th day of November, 1997, by and between
PARAGON HEALTH NETWORK, INC., a Delaware corporation ("Paragon") (as used
herein, the term "Company" includes Paragon and all its Affiliates (as defined
below), including, without limitation, GranCare, Inc. a Delaware corporation
("GranCare"), and all its subsidiaries), and EDWARD L. KUNTZ, an individual
resident of the State of Texas (the "Employee").

                              STATEMENT OF FACTS

     Pursuant to the terms of an employment agreement dated March 24, 1995, by
and among the Employee, Living Centers of America, Inc. ("LCA"), and LC
Management Company (the "Employment Agreement"), Employee has served in an
executive capacity with LCA, a predecessor to the Paragon. The Employment
Agreement has been modified by the Board of Directors of LCA and through other
oral understandings.  In light of the fact that the Company and the Employee
have agreed that the Employee's employment with the Company will terminate as of
the closing of the merger of GranCare, Inc and Living Centers of America, Inc.
(the "Closing"), the Company and Employee wish to clarify the terms of the
Employment Agreement.

     In terminating the employee-employer relationship between the Company and
the Employee, the Company recognizes that the Employee possesses valuable
information and skills, which if used in competition with the Company would have
a significant and detrimental effect on the Company's business and prospects.
The Company also owns or has access or rights to certain confidential and
proprietary information, which information is vital to the success of the
Company.  The Company wishes to protect and maintain this information, which has
been developed by or which has become known to Employee during Employee's
employment by the Company and which, if disclosed to the Company's competitors
or if used in a competitive way, would be detrimental to the Company's business.

     Furthermore, the Company employs individuals and engages other employees
and consultants in which it has invested or will invest substantial time and
money in training in ways to make the Company competitive and successful, and
such employees and consultants possess important skills and knowledge which have
been obtained by them during their employment or engagement, and the Company
wishes to protect and maintain its relationships with its employees and
consultants in order to further its business.

     In recognition of these facts, the Company and the Employee wish to clarify
and supercede the terms of the Employment Agreement to better reflect the
parties understanding of their relative rights and duties with respect to their
post-employment relationship.
<PAGE>
 
                              STATEMENT OF TERMS

     In consideration of the covenants and undertakings and the releases
contained in this Agreement, and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Employee and the Company agree
as follows:

     1.   SEPARATION.   Employee acknowledges that his last day of employment
with the Company will be as of the Closing. Employee's employment records will
show that he resigned from the Company.
 
     2.   CONSIDERATION.

          (a)  In consideration of the waiver of the obligations under the
     Employment Agreement and in consideration of Employee's past services to
     the Company, the Company will pay to Employee the following:

               (i)    The sum of $1,000,000.00, payable in one lump sum at the
          closing of the merger of LCA with GranCare, Inc. (the "Closing");

               (ii)   The transfer of the title to the Cadillac Seville
          presently used by the Employee; and

               (iii)  The payment of $24,000.00 in lieu of Company provided
          welfare benefit continuation;

               (iv)   All stock options granted to Employee under the Living
          Centers of America, Inc. 1992 Stock Option Plan, as amended (the
          "Option Plan"), will be cashed out as provided in the merger agreement
          among LCA, GranCare, Inc., and Apollo Advisors, L.P., and

               (v)    If the Employee is liable for the payment of any excise
          tax (the "Basic Excise Tax") because of Section 4999 of the Internal
          Revenue Code of 1986, as amended (the "Code"), or a successor or
          similar provisions, with respect to any payments for benefits received
          or to be received from the Company, whether provided under this
          Agreement or otherwise, the Company shall pay the Employee an amount
          (the "Special Reimbursement") which, after payment by the Employee,
          (or on the Employee's behalf) of any federal, state and local taxes
          applicable thereto, including, without limitation, any further excise
          tax under such Section 4999 of the Code, on, with respect to or
          resulting from the Special Reimbursement, equals the amount of the
          Basic Excise Tax. The Employee shall not take any position
          inconsistent with the Company's treatment of any payment to the
          Employee pursuant to this Agreement or otherwise from the Company, its
          affiliates, predecessors and successors, for purposes of the excise
          tax imposed pursuant to Code Section 4999 or a successor or similar
          provision. In the event that the Employee receives notice from the
          Internal Revenue Service of an audit, 

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          deficiency, assessment or other challenge (a "Dispute") relating to
          the treatment under Code Section 280G or 4999 of the amounts paid to
          the Employee pursuant to this Agreement or any other payments he
          receives from the Company, its predecessors or successors, the
          Employee shall promptly notify the Company of such Dispute. The
          Company shall be entitled to appoint representatives for the Employee
          in connection with the Dispute and to control all matters with respect
          to the Dispute. The Company agrees to indemnify and hold the Employee
          harmless from any and all taxes, interest and penalties that the
          Employee may incur in connection with any such Dispute which are
          directly related to the payment (or nonpayment) of a Special
          Reimbursement; provided, however, that the Company shall not indemnify
          the Employee for any taxes, penalties or interest due to the failure
          of the Employee to report or to pay taxes and/or excise taxes on any
          Special Reimbursement relating to any period following the payment of
          the Special Reimbursement by the Company to the Employee. The Employee
          covenants and agrees that he shall pay the amount of the Special
          Reimbursement to the appropriate taxing authorities as soon a possible
          following his receipt of such payment.

          (b)  In consideration for the covenants contained in Sections 3 and 17
     hereof, the Company will pay to Employee the following amounts:
     $1,800,000.00 at the Closing, $575,000.00 on November 1, 1998 and $75,000
     on November 1, 1999.

     3.   RESTRICTIVE COVENANTS.

          (a)  Agreement Not to Solicit Employees or Consultants. For a period
               -------------------------------------------------
     of two (2) years following the date hereof, Employee shall not, either
     directly or indirectly, on Employee's own behalf or on behalf of others,
     solicit, divert or hire away, or attempt to solicit, divert or hire away,
     any person employed by the Company, whether or not such employee is a full-
     time or temporary employee of the Company and whether or not such
     employment is pursuant to a written agreement for a determined period of
     time or at will, or any consultant engaged by the Company.

          (b)  Noncompetition. During the period of ninety (90) days following
               --------------
     the Closing, Employee shall not, directly or indirectly, undertake, engage
     in or perform any of the same types of services which have been performed
     by Employee on behalf of the Company for any Competing Business in the
     Territory. The provisions hereof shall not prevent Employee from owning as
     much as three percent (3%) of the issued and outstanding publicly-traded
     shares of any Competing Business.

          (c)  Restrictions on Use and Disclosure of Company Information.
               ---------------------------------------------------------
     Employee agrees that, with respect to Confidential Information, for a
     period of three (3) years following the date hereof and, with respect to
     Trade Secrets, for so long as such Company Information qualifies as a trade
     secret under applicable law:

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<PAGE>
 
               (i)    Employee will receive and hold all the Company Information
     in trust and in strictest confidence;

               (ii)   Employee will in no event take any action causing any of
     the Company Information to lose its character as Company Information, or
     fail to take the action necessary in order to prevent any Company
     Information from losing its status as Company Information; and

               (iii)  Except as may be required by applicable laws, Employee
     will not, directly or indirectly, use, publish, disseminate or otherwise
     disclose any Company Information to any third party without the prior
     written consent of the Company, which may be withheld in the Company's
     absolute discretion,.

          (d)  Return of Materials. All Materials are the property of the
               -------------------
     Company. Employee will not remove from the Company's premises or copy or
     reproduce any Materials (except as Employee's employment by the Company
     shall require), and Employee will leave with the Company, or immediately
     return to the Company, all Materials or copies or reproductions thereof in
     Employee's possession, power or control.

          (e)  Copyrights.
               ----------

               (i)    Employee agrees that any Works created by Employee in the
          course of Employee's duties as an employee of the Company are subject
          to the "Work for Hire" provisions contained in Sections 101 and 201 of
          the United States Copyright Law, Title 17 of the United States Code.
          All right, title and interest to copyrights in all Works that have
          been or will be prepared by Employee within the scope of Employee's
          employment with the Company will be the property of the Company.
          Employee acknowledges and agrees that, to the extent the provisions of
          Title 17 of the United States Code do not vest in the Company the
          copyrights to any Works, Employee hereby assigns to the Company all
          right, title and interest to copyrights which Employee may have in the
          Works.

               (ii)   Employee must disclose to the Company all Works referred
          to in Section 3(e) and will execute and deliver all applications,
          registrations, and documents relating to the copyrights to the Works
          and will provide assistance to secure the Company's title to the
          copyrights in the Works. The Company will be responsible for all
          expenses incurred in connection with the registration of all such
          copyrights that it decides to register.

               (iii)  Employee has no ownership rights in any Works.

          (f)  Definitions. As used in this Section 3, the following terms shall
               -----------
     have the following meanings:

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          (i)     "Affiliate" means any business entity that controls, is
                   ---------
     controlled by, or is under common control with the Paragon.

          (ii)    "Business of the Company" means the business of owning and/or
                   -----------------------
     operating skilled nursing facilities or an institutional pharmacy business.

          (iii)   "Company Information" means Confidential Information and Trade
                   -------------------
     Secrets.
  
          (iv)    "Competing Business" means the skilled nursing facility
                   ------------------
     business or institutional pharmacy business.

          (v)     "Confidential Information" means confidential data and
                   ------------------------
     confidential information relating to the business of the Company (which
     does not rise to the status of a trade secret under applicable law) which
     is or has been disclosed to Employee or of which Employee became aware as a
     consequence of or through Employee's employment with the Company and which
     has value to the Company and is not generally known to its competitors and
     which is designated by the Company as confidential. Confidential
     Information shall not include any data or information that (i) has been
     voluntarily disclosed to the general public by the Company, (ii) has been
     independently developed and disclosed to the general public by others, or
     (iii) otherwise enters the public domain through no violation of the
     covenants contained in this Section by the Employee.

          (vi)    "Materials" means all documents or tangible or intangible
                   ---------
     materials, including computer data, provided to or obtained by Employee
     during the course of employment by the Company which contain the Company
     Information.

          (vii)   "Territory" means any state in the United States of America
                   ---------
     where the Company has operations.

          (viii)  "Trade Secrets" means information of the Company, without
                   -------------
     regard to form, including, but not limited to, technical or nontechnical
     data, formulas, patterns, compilations, programs, devices, methods,
     techniques, drawings, processes, financial data, financial plans, product
     or service plans or lists of actual or potential customers or suppliers
     which is not commonly known by or available to the public and which
     information (i) derives economic value, actual or potential, from not being
     generally known to, and not being readily ascertainable by proper means by,
     other persons who can obtain economic value from its disclosure or use; and
     (ii) is the subject of efforts that are reasonable under the circumstances
     to maintain its secrecy.

          (ix)    "Work" means a copyrightable work of authorship, including
                   ----
     without limitation, any technical descriptions for products, user's 
     guides,

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<PAGE>
 
          illustrations, advertising materials, computer programs (including the
          contents of read only memories) and any contribution to such
          materials.

          (g)  Remedies. Employee agrees that the covenants contained in
               --------
     Subsections (a), (b), (c), (d) and (e) of this Section are of the essence
     of this Agreement; that each of such covenants is reasonable and necessary
     to protect and preserve the business, interests and properties of the
     Company, and that irreparable loss and damage will be suffered by the
     Company should Employee breach any of such covenants. Therefore, Employee
     agrees and consents that, in addition to all other remedies provided at law
     or in equity, the Company shall be entitled to a temporary restraining
     order and temporary and permanent injunctions to prevent a breach or
     contemplated breach of any of such covenants, and Employee shall be
     obligated to return to the Company a portion of the consideration provided
     in Section 4 which is attributable to the covenant which was breached and
     which is prorated based on the period during which such breach was in
     effect. The existence of any claim, demand, action or cause of action of
     Employee against the Company shall not constitute a defense to the
     enforcement by the Company of any of the covenants or agreements herein.

     4.   SEVERABILITY.  The parties agree that each of the provisions included
in this Agreement is separate, distinct and severable from the other and
remaining provisions of this Agreement, and that the invalidity or
unenforceability of any Agreement provision shall not affect the validity and
enforceability of any other provision or provisions of this Agreement.  Further,
if any provision of this Agreement is ruled invalid or unenforceable by a court
of competent jurisdiction because of a conflict between such provision and any
applicable law or public policy, such provision shall be valid and enforceable
to the extent such provision is consistent with such law or public policy.

     5.   CONSULTING SERVICES.  Employee agrees that following the date hereof,
other than death or a permanent disability that prevents Employee's cooperation,
Employee shall, upon reasonable notice, (i) furnish such information and give
such assistance to the Company in any controversy or matter involving any
controversy or actual or potential litigation as may reasonably be requested by
the Company and (ii) discuss with the Company's personnel or advisors any events
that involved LCA and its subsidiaries during Employee's employment by the
Company.  Employee also agrees to serve as Paragon's representative to the
multi-facility committee of the American Health Care Association (the "AHCA").
Employee shall provide the services described in this Section 5 for a period of
three (3) years; provided that the Company may terminate Employee's appointment
as Paragon's representative to the multi-facility committee of the AHCA at any
time upon thirty (30) days notice to Employee, but his other obligations
pursuant to this Section 5 shall continue.  In consideration for Employee's
services pursuant to this Section 6, the Company shall pay to Employee the sum
of $100,000.00 per year, payable in advance at the beginning of each one-year
period hereunder.  The Company shall compensate Employee for all reasonable
expenses incurred while so assisting the Company for the services hereunder.
Employee is not obligated to assist in any controversy or litigation between the
Company and Employee or any of the Employee's future employers.

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<PAGE>
 
     6.   NOVATION AND WAIVER.  This Agreement supercedes and replaces the
Employment Agreement, as well as any other amendments or modifications thereto,
all of which shall be and become null and void as to all parties thereto.  The
Company shall have no obligation to pay any other consideration to Employee
except as provided in this Agreement.

     7.   FURTHER ACTION.  The parties agree to perform all further acts and
execute, acknowledge and deliver any documents that may be reasonably necessary,
appropriate or desirable to carry out the provisions of this Agreement.

     8.   NOTICES.  Any notice, request, demand, or other communication required
to be given hereunder shall be made in writing and shall be deemed to have been
fully given if personally delivered or if mail by overnight delivery to the
parties at the following addresses, or at such other addresses as shall be given
in writing by either party to the other party hereto:

     If to the Company:

          Paragon Heath Network, Inc.
          One Ravinia Drive
          Suite 1500
          Atlanta, Georgia 30346
          Attn:  Henry Day, Esq.


     With a copy to:

          Powell, Goldstein, Frazer & Murphy LLP
          191 Peachtree Street, N.E.
          Sixteenth Floor
          Atlanta, Georgia 30303-1740
          Attn:  Richard Miller, Esq.

     If to Employee:

          Edward L. Kuntz
          8807 Stable Crest Boulevard
          Houston, Texas 77024

     9.   ASSIGNMENT.  This Agreement and the rights and obligations of the
Company hereunder may be assigned by the Company and shall inure to the benefit
of, shall be binding upon, and shall be enforceable by any such assignee.  This
Agreement and the rights and obligations of Employee hereunder may not be
assigned by Employee.

     10.  WAIVER.  No consent or waiver by a party with respect to any breach or
default by the other party hereunder shall be effective unless in writing, and
no such waiver or consent shall be deemed or construed to be a consent or waiver
with respect to any other breach or default by 

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<PAGE>
 
such party of the same provision or any other provision of this Agreement.
Failure on the part of a party to complain of any act or failure to act of the
other party or to declare such other party in default shall not be deemed or
constitute a waiver of any rights hereunder.

     11.  GOVERNING LAW.  This Agreement shall be governed and construed as to
both substantive and procedural matters in accordance with the laws of the State
of Texas, without regard to the conflict of laws principles thereof.

     12.  INTERPRETATION.  Should any provision of this Agreement require a
judicial interpretation, it is agreed that the judicial body interpreting or
construing this Agreement shall not apply the assumption that the terms of this
Agreement shall be more strictly construed against one party by reason of the
rule of legal construction that an instrument is to be construed more strictly
against the party which itself or through its agents prepared the agreement.
The parties acknowledge and agree that they and their agents have each
participated equally in the negotiations and preparation of this Agreement, and
Employee acknowledges that Employee has had the opportunity to consult legal
counsel regarding the terms hereof.

     13.  CONSENT TO JURISDICTION.  Each party (i) submits to personal
jurisdiction in the State of Texas for the enforcement of this Agreement, and
(ii) waives any and all rights under the laws of any state to object to
jurisdiction within the State of Texas for the purposes of litigation to enforce
this Agreement.  Notwithstanding the foregoing, nothing contained in this
Agreement shall prevent a party from bringing any action against the other party
within any other state or country.  Initiating such proceeding or taking such
action in any jurisdiction shall not constitute a waiver of the agreement that
the laws of the State of Texas shall govern or of the submission made by a party
to personal jurisdiction within the State of Texas.

     14.  HEADINGS.  Titles and captions contained in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or extend or describe the scope of this Agreement or the intent of any
provision contained in this Agreement.

     15.  ENTIRE AGREEMENT.  This Agreement embodies the entire agreement of the
parties on the subject matter herein.  No amendment or modification of this
Agreement shall be valid or binding upon the Company or Employee unless made in
writing and signed by the parties hereto.  All prior understandings and
agreements relating to the subject matter of this Agreement are hereby expressly
terminated.

     16.  NON-ADMISSION.  Employee agrees and acknowledges that neither this
Agreement nor the Company's offer to enter into this Agreement should be
construed as an admission by the Company that it has acted wrongfully towards
Employee or anyone else, and that the Company expressly denies any liability to
or having engaged in any wrongful acts or omissions against Employee.

     17.  STATEMENTS REGARDING THE COMPANY. Except as may be required by
applicable law, Employee agrees not to make any written or verbal statements in
any form concerning the Company, its predecessors, Living Centers of America,
Inc. and GranCare, Inc., his employment 

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<PAGE>
 
with the Company and its predecessors, or the termination of his employment with
the Company to any person or entity if such statements are intentionally
designed to be injurious or inimical to the best interests of the Company or
Employee.

     18.  CONFIDENTIALITY.  Employee agrees to keep the terms, conditions and
fact of this Agreement completely confidential and not to disclose any
information concerning this Agreement to any other person, except Employee's
immediate family, personal financial advisor, tax advisor and attorney, provided
they agree to keep this information confidential, and except as may be required
by law.  Without limiting the generality of the foregoing, Employee will not
respond to or in any way participate in or contribute to any public discussion,
notice or publicity concerning or in any way related to the execution of this
Agreement or the events (including any negotiations) which led to its execution.
In addition, without limiting the generality of the foregoing, Employee
specifically agrees not to disclose information regarding this Agreement or the
fact of this Agreement to any other current or former employee of the Company

     19.  PARTICIPATION IN OTHER ACTIONS.  Employee agrees not to participate in
any legal action of any kind by any other employee or former employee of the
Company and will not testify or otherwise provide evidence in any investigation,
hearing, or trial of any such action, except under subpoena.  Employee also
agrees not to solicit, counsel, advise, suggest, assist, or encourage any
claims, demands, rights, or causes of action of any kind of other persons
against the Company.

     20.  MERGER OF UNDERSTANDING.  This Agreement constitutes and contains the
entire agreement and understanding concerning Employee's employment, the
termination thereof and the other matters addressed herein between the parties,
and supersedes and replaces all prior negotiations and all agreements proposed
or otherwise, whether written or oral, concerning the subject matter hereof.
This Agreement shall not be modified, altered, changed or amended in any respect
unless in writing and signed by both parties.  Notwithstanding the foregoing, in
no event shall this Agreement be construed to change, alter or limit the
Company's obligations to the Employee;

          (i)    under any existing employee benefit plan or programs, the
     benefits under which shall continued to be governed in accordance with
     their terms;

          (ii)   for payment to the Employee of his base salary through his last
     day of employment with the Company;

          (iii)  the payment of accrued, but unused, vacation of the Employee
     through the Closing, which shall be paid at Closing;

          (iv)   for the payment of a prorated bonus for the fiscal year of
     termination (which through October 31, 1997 was $18,667), which shall be
     paid at Closing; and

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<PAGE>
 
          (v)    for the bonus in the amount of $275,520 which is owed to the
     Employee under the Company's bonus plan for the 1997 fiscal year, which
     shall be paid at Closing.

     21. EXPENSES. The Company shall reimburse Employee for his reasonable legal
expenses incurred in connection with his entering into this Agreement.

     22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.

     23. EMPLOYEE'S FURTHER ACKNOWLEDGMENTS. EMPLOYEE ACKNOWLEDGES AND
REPRESENTS THAT HE HAS READ AND ACCEPTS AND AGREES TO THE PROVISIONS OF THIS
AGREEMENT AND HAS HAD SUFFICIENT TIME AND OPPORTUNITY TO CONSULT WITH
INDIVIDUALS OF EMPLOYEE'S OWN CHOICE. EMPLOYEE EXECUTES THIS AGREEMENT
VOLUNTARILY WITH FULL UNDERSTANDING OF ITS CONSEQUENCES.


     IN WITNESS WHEREOF, Paragon and Employee have each executed and delivered
this Agreement as of the date first shown above.


                              EMPLOYEE:

                              /s/ Edward L. Kuntz  
                              --------------------------------------------------
                              Print Name:   Edward L. Kuntz
                                          --------------------------------------

                              THE COMPANY:

                              PARAGON HEALTH NETWORK, INC.

                                  /s/    KEITH B. PITTS
                              By:_______________________________________________
                              Print Name: Keith B. Pitts
                              Title: Chief Executive Officer

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