<PAGE>
 
                                                                    EXHIBIT 4.13

     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.  NEITHER THIS NOTE
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.

     THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SECTION 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTES FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF
SUCH NOTES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE
IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) ABOVE TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE FOREGOING
CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF
THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE
TRUSTEE.  THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC")  TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.

     TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
<PAGE>
 
No. 1                                                       Principal Amount $0

                                                           CUSIP NO. 698940 AC 7


                   9 1/2% Senior Subordinated Note due 2007


          Paragon Health Network, Inc., a Delaware corporation promises to pay
to Cede & Co., or registered assigns, the principal sum of Zero Dollars on
November 1, 2007.

          Interest Payment Dates:  May 1 and November 1.

          Record Dates:  April 15 and October 15.

          Additional provisions of this Note are set forth on the other side of
          this Note.


Dated:  November 4, 1997           PARAGON HEALTH NETWORK, INC.



                                   By:/s/ Keith B. Pitts
                                      -------------------------------  
                                      Keith B. Pitts
                                      Chairman, President and 
                                      Chief Executive Officer


 
                                   By:/s/ Charles B. Carden
                                      --------------------------------  
                                      Charles B. Carden
                                      Executive Vice President and
                                      Chief Financial Officer


TRUSTEE'S CERTIFICATE OF
 AUTHENTICATION

IBJ SCHRODER BANK & TRUST COMPANY
as Trustee, certifies that this
is one of the Notes referred to
in the Indenture.


By /s/ Terrence Rawlins
  --------------------------
  Authorized Signatory                  November 4, 1997
<PAGE>
 
                                                                               2

                   9 1/2% Senior Subordinated Note due 2007


1.   Interest
     --------

          Paragon Health Network, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company")) promises to pay interest on the
principal amount of this Note at the rate per annum shown above.

          The Company will pay interest semi-annually in cash and in arrears to
Holders of record at the close of business on the April 15 and October 15
immediately preceding the interest payment date on May 1 and November 1 of each
year, commencing May 1, 1998.  Interest on the 9 1/2% Senior Subordinated Notes
due 2007 (the "Notes") will accrue from the most recent date to which interest
has been paid on the Notes or, if no interest has been paid, from November 4,
1997.  The Company shall pay interest on overdue principal or premium, if any
(plus interest on such interest to the extent lawful), at the rate borne by the
Notes to the extent lawful.  Interest will be computed on the basis of a 360-day
year of twelve 30-day months.

2.   Method of Payment
     -----------------

          By at least 10:00 a.m. (New York City time) on the date on which any
principal of or interest on the Notes is due and payable, the Company shall
irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay
such principal, premium, if any, and/or interest.  The Company will pay interest
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the April 15 or October 15 next preceding the
interest payment date even if the Notes are cancelled, repurchased or redeemed
after the record date and on or before the interest payment date.  Holders must
surrender Notes to a Paying Agent to collect principal payments.  The Company
will pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts.  However,
the Company may pay interest by check payable in such money.  It may mail an
interest check to a Holder's registered address.

3.   Trustee, Paying Agent and Registrar
     -----------------------------------

          Initially, IBJ Schroder Bank & Trust Company, a New York banking
corporation (the "Trustee"), will act as Trustee, Paying Agent and Registrar.
IBJ Schroder Bank & Trust Company will also act as the Trustee for $294,000,000
aggregate principal amount of 10 1/2% Senior Subordinated Discount Notes due
2007 (the "Senior Subordinated Discount Notes").  The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice to any
Noteholder.  The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.

4.   Indenture
     ---------

          The Company issued the Notes under an Indenture dated as of November
4, 1997 (as it may be amended or supplemented from time to time in accordance
with the terms thereof, the "Indenture"), among the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
                                                                     ------
(S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Capitalized terms used herein and not defined herein have the meanings ascribed
thereto in the Indenture.  The Notes are subject to all such terms, and
Noteholders are referred to the Indenture and the Act for a statement of those
terms.

          The Notes are general unsecured senior subordinated obligations of the
Company limited to $275 million aggregate principal amount (subject to Section
310 of the Indenture).  This Note is one of the Initial Notes referred to in the
Indenture.  The Notes include the Initial Notes and any Exchange Notes issued in
exchange for the Initial Notes pursuant to the Indenture and the Registration
Rights Agreement.
<PAGE>
 
                                                                               3

The Initial Notes and the Exchange Notes are treated as a single class of
securities under the Indenture.  The Indenture imposes certain limitations on
the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries,
the payment of dividends on, and the purchase or redemption of, Capital Stock of
the Company and its Restricted Subsidiaries, certain purchases or redemptions of
Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of
Restricted Subsidiaries, investments of the Company and its Restricted
Subsidiaries and transactions with Affiliates.  In addition, the Indenture
limits the ability of the Company and its Subsidiaries to restrict distributions
and dividends from Restricted Subsidiaries.

5.   Optional Redemption
     -------------------

          The Notes will be redeemable, at the Company's option, in whole or in
part, at any time and from time to time on and after November 1, 2002 and prior
to maturity, upon not less than 30 nor more than 90 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed as a percentage of principal amount), plus accrued
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
November 1 of the years set forth below:

     Year                                    Redemption Price
     ----                                    ----------------

     2002..................................     104.750%
     2003..................................     103.167%
     2004..................................     101.583%
     2005 and thereafter...................     100.000%

          In addition, at any time and from time to time prior to November 1,
2000, the Company may redeem in the aggregate up to 33-1/3% of the original
aggregate principal amount of the Notes with the proceeds of one or more Equity
Offerings by the Company at a redemption price (expressed as a percentage of
principal amount thereof) of 109.5% plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 50% of the original aggregate principal amount
of the Notes must remain outstanding after each such redemption and that any
such redemption occurs within 90 days following the closing of any such Equity
Offering.

          The aggregate principal amount of the Notes and the Senior
Subordinated Discount Notes to be redeemed shall be allocated by the Company
between the Notes and the Senior Subordinated Discount Notes in the Company's
sole discretion.

6.   Notice of Redemption
     --------------------

          Notice of redemption will be mailed at least 30 days but not more than
90 days before the redemption date to each Holder of Notes to be redeemed at his
registered address.  Notes in denominations of principal amount larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000.  If money
sufficient to pay the redemption price of and accrued and unpaid interest on all
Notes (or portions thereof) to be redeemed on the redemption date is deposited
with the Paying Agent on or before the redemption date and certain other
conditions are satisfied, on and after such date interest ceases to accrue on
such Notes (or such portions thereof) called for redemption.
<PAGE>
 
                                                                               4

7.   Put Provisions
     --------------

          Upon a Change of Control, any Holder of Notes will have the right to
cause the Company to repurchase all or any part of the Notes of such Holder at a
repurchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase as provided in, and subject to the
terms of, the Indenture.

8.   Subordination and Ranking
     -------------------------

          The Notes are subordinated to Senior Indebtedness, as defined in the
Indenture.  To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Notes may be paid.  The Company agrees, and each Noteholder by
accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give them effect and appoints the
Trustee as attorney-in-fact for such purpose.  The Notes and the Senior
Subordinated Discount Notes will in all respects rank pari passu with each other
and with all other Senior Subordinated Indebtedness of the Company.

9.   Denominations; Transfer; Exchange
     ---------------------------------

          The Notes are in registered form without coupons in denominations of
principal amount of $1,000 and whole multiples of $1,000.  A Holder may transfer
or exchange Notes in accordance with the Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture.  The Registrar need not register the transfer of or exchange of (i)
any Note selected for redemption (except, in the case of a Note to be redeemed
in part, the portion of the Note not to be redeemed) for a period beginning 15
days before a selection of Notes to be redeemed and ending on the date of such
selection or (ii) any Notes for a period beginning 15 days before an interest
payment date and ending on such interest payment date.

10.  Persons Deemed Owners
     ---------------------

          The registered holder of this Note may be treated as the owner of it
for all purposes.

11.  Unclaimed Money
     ---------------

          If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person.  After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.

12.  Defeasance
     ----------

          Subject to certain conditions set forth in the Indenture, the Company
at any time may terminate some or all of its obligations under the Notes and the
Indenture if the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Notes to redemption
or maturity, as the case may be.  The Company in its sole discretion can defease
either or both of the Notes and the Senior Subordinated Discount Notes.

13.  Amendment, Waiver
     -----------------

          Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes and (ii) any
default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the outstanding
Notes.  Subject to certain exceptions set forth in the Indenture, without the
consent of any Noteholder, the Company and the Trustee
<PAGE>
 
                                                                               5
 
may amend the Indenture or the Notes to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to add
guarantees with respect to the Notes or to secure the Notes, or to add
additional covenants or surrender rights and powers conferred on the Company, or
to comply with any request of the SEC in connection with qualifying the
Indenture under the Act, or to make any change that does not adversely affect
the rights of any Noteholder, or to provide for the issuance of Exchange Notes.

          The Notes and the Senior Subordinated Discount Notes will vote
together as a single class of securities under the Indenture with respect to
matters on which Holders are required or permitted to vote.

14.  Defaults and Remedies
     ---------------------

          Under the Indenture, Events of Default include (i) a default in any
payment of interest on any Note when due (whether or not such payment is
prohibited by Article 13 of the Indenture), continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment is prohibited by Article 13 of the
Indenture, (iii) the failure by the Company to comply with its obligations under
Section 801 of the Indenture, (iv) the failure by the Company to comply for 30
days after written notice with any of its obligations under Section 1016 of the
Indenture or Sections 1003, 1009, 1010, 1011, 1012, 1013, 1014, 1015, 1017, 1019
or 1020 of the Indenture (in each case, other than a failure to purchase Notes
when required under Sections 1016 or 1017 of the Indenture), (v) the failure by
the Company to comply for 60 days after notice with its other agreements
contained in the Notes or the Indenture, (vi) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or the acceleration of any such Indebtedness by the
holders thereof because of a default if the total amount of such Indebtedness
unpaid or accelerated exceeds $20.0 million, (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary, (viii)
the rendering of any judgment or decree for the payment of money in an amount
(net of any insurance or indemnity payments actually received in respect thereof
prior to or within 90 days from the entry thereof, or to be received in respect
thereof in the event any appeal thereof shall be unsuccessful) in excess of
$20.0 million against the Company or a Significant Subsidiary that is not
discharged, bonded or insured by a third Person if (A) an enforcement proceeding
thereon is commenced or (B) such judgment or decree remains outstanding for a
period of 90 days following such judgment or decree and is not discharged,
waived or stayed or (ix) the failure of any Guarantee of the Notes by a
Guarantor made pursuant to Section 1020 of the Indenture to be in full force and
effect (except as contemplated by the terms thereof or of the Indenture) or the
denial or disaffirmation in writing by any such Guarantor of its obligations
under the Indenture or any such Guarantee if such Default continues for 10 days.
If an Event of Default occurs and is continuing, the Trustee or the Holders of
at least a majority in principal amount of the outstanding applicable Notes may
declare all such Notes to be due and payable immediately.  Certain events of
bankruptcy or insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of Default.

          Noteholders may not enforce the Indenture or the Notes except as
provided in the Indenture.  The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security.  Subject to
certain limitations, Holders of a majority in principal amount of the Notes may
direct the Trustee in its exercise of any trust or power.  The Trustee may
withhold from Noteholders notice of any continuing Default or Event of Default
(except a Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest.

15.  Trustee Dealings with the Company
     ---------------------------------

          Subject to certain limitations set forth in the Indenture, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by the Company or its affiliates and may otherwise deal with the
Company or its affiliates with the same rights it would have if it were not
Trustee.
<PAGE>
 
                                                                               6

16.  No Recourse Against Others
     --------------------------

          A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.  By accepting a Note, each Noteholder waives and
releases all such liability.  The waiver and release are part of the
consideration for the issue of the Notes.

17.  Authentication
     --------------

          This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Note.

18.  Registration Rights
     -------------------

          The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of November 4, 1997 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein.  In the event that either (i) an Exchange Offer Registration Statement
is not filed with the Commission on or prior to 60 days after the Issue Date,
(A) an Exchange Offer Registration Statement or a Shelf Registration Statement
is not declared effective within 150 days after the Issue Date, or (B) the
Exchange Offer is not consummated on or prior to 180 days after the Issue Date
in respect of tendered Notes and a Shelf Registration Statement has not been
declared effective or a Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 45 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (A) and (B), a "Registration Default"), the Company will pay
liquidated damages to each holder of Transfer Restricted Securities (as defined
in the Registration Rights Agreement), during the period of one or more such
Registration Defaults, in an amount equal to $.192 per week per $1,000 principal
amount of the Notes constituting Transfer Restricted Securities held by such
holder until the applicable Registration Statement is filed or declared
effective, the Exchange Offer is consummated or the Shelf Registration Statement
again becomes effective, as the case may be, provided that, except in certain
limited circumstances, the Company's obligation to pay liquidated damages will
terminate upon consummation of the Exchange Offer.  All accrued liquidated
damages shall be paid to holders in the same manner as interest payments on the
Notes on semi-annual payment dates which correspond to interest payment dates
for the Notes.  Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.

19.  Abbreviations
     -------------

          Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants
in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).

20.  CUSIP Numbers
     -------------

          Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Noteholders.  No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
 
                                                                               7
 
21.  Governing Law
     -------------

          THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY
LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.

          The Company will furnish to any Noteholder upon written request and
without charge to the Noteholder a copy of the Indenture.  Requests may be made
to:

                    Paragon Health Network, Inc.
                    One Ravinia Drive, Suite 1500
                    Atlanta, GA  30346

                    Attention of General Counsel



                 [Remainder of Page Intentionally Left Blank]
<PAGE>
 
                                ASSIGNMENT FORM

          To assign this Note, fill in the form below:

          I or we assign and transfer this Note to
 
             (Print or type assignee's name, address and zip code)

                 (Insert assignee's soc. sec. or tax I.D. No.)

     and irrevocably appoint agent to transfer this Note on the books of the
     Company.  The agent may substitute another to act for him.

________________________________________________________________________________

Date:____________________    Your Signature:___________________

Signature Guarantee:_____________________________________
                    (Signature must be guaranteed)

________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.

The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for, STAMP), pursuant to S.E.C. Rule
17Ad-15.

In connection with any transfer or exchange of any of the Notes evidenced by
this certificate occurring prior to the date that is two years after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being:

CHECK ONE BOX BELOW:

     1[_]    acquired for the undersigned's own account, without transfer; or


     2[_]    transferred to the Company; or


     3[_]    transferred pursuant to and in compliance with Rule 144A under
             the Securities Act of 1933; or


     4[_]    transferred pursuant to an effective registration statement under
             the Securities Act of 1933; or


     5[_]    transferred pursuant to and in compliance with Regulation S under
             the Securities Act of 1933; or


     6[_]    transferred to an institutional "accredited investor" (as defined
             in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
             1933), that has furnished to the Trustee a signed letter
             containing certain representations and agreements (the form of
             which letter appears on the reverse side of this Note); or
<PAGE>
 
                                                                               2
 
     7[_]    transferred pursuant to another available exemption from the
             registration requirements of the Securities Act of 1933.

Unless one of the boxes is checked, the Trustee may refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (5), (6) or (7) is
checked, the Trustee or the Company may require, prior to registering any such
transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.


                                   _________________________________
                                         Signature
Signature Guarantee:

________________________________   _________________________________
 (Signature must be guaranteed)          Signature


____________________________________________________________

The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15.
<PAGE>
 
               SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE


   The following increases or decreases in this Global Note have been made:


<TABLE>
<CAPTION>
Date of Exchange              Amount of decrease in     Amount of increase in      Principal Amount of      Signature of authorized
                               Principal Amount of       Principal Amount of        this Global Note       signatory of Trustee or
                                 this Global Note          this Global Note      following such decrease        Notes Custodian
                                                                                       or increase
<S>                          <C>                        <C>                      <C>                       <C>   
</TABLE>
<PAGE>
 
                      OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Note purchased by the Company
pursuant to Section 1016 or 1017 of the Indenture, check the box:

                                      [_]

          If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 1016 or 1017 of the Indenture, state the amount in
principal amount (must be integral multiple of $1,000):  $


Date: __________   Your Signature_____________________________________________
                                    (Sign exactly as your name appears on the
                                    other side of the Note)


Signature Guarantee: _______________________________________
                       (Signature must be guaranteed)

The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for STAMP, pursuant to S.E.C. Rule
17Ad-15.
<PAGE>
 
     Form of Certificate To Be Delivered in Connection with Transfers to
                       Institutional Accredited Investors



                                    [date]


     PARAGON HEALTH NETWORK, INC.
     c/o IBJ Schroder Bank & Trust Company, as Trustee
     1 State Street, 11th Floor
     New York, New York  10004
     Attention:  Corporate Trust Administration
 
Ladies and Gentlemen:

          This certificate is delivered to request a transfer of $__________
principal amount of the 9 1/2% Senior Subordinated Notes due 2007 (the "Notes")
of Paragon Health Network, Inc. (the "Company").

          Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:

          Name:
          Address:
          Taxpayer ID Number:

          The undersigned represents and warrants to you that:

          (1) We are an institutional "accredited investor" (as defined in Rules
501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as amended (the
"Securities Act")), purchasing for our own account or for the account of an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act.  We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes and
invest in or purchase securities similar to the Notes in the normal course of
our business.  We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.

          (2) We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence.  We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of the
date of original issue and the last date on which the Company or any affiliate
of the Company was the owner of such Notes (or any predecessor thereto) (the
"Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to
a registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act that is purchasing for its own account
or for the account of such an institutional "accredited investor", in each case
in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws.  The foregoing restrictions on resale will not
apply subsequent to the Resale 
<PAGE>
 
                                                                               2
 
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company and the Trustee reserve the right prior
to any offer, sale or other transfer prior to the Resale Termination Date of the
Notes pursuant to clauses (d), (e) or (f) above to require the delivery of an
opinion of counsel, certifications and/or other information satisfactory to the
Company and the Trustee.

                                   TRANSFEREE:

                                   BY:



Upon transfer the Notes would be registered in the name of the new beneficial
owner as follows:

                                          TAXPAYER ID
NAME                     ADDRESS            NUMBER:
------                   -------            -------  



Very truly yours,

[Name of Transferor]



By:______________________________    _________________________________
  Name:                              Signature Medallion Guaranteed
  Title: