Dynacq Healthcare Inc. Subsidiary Files Voluntary Petition for Bankruptcy Reorganization Under Chapter 11

HOUSTON -- Dynacq Healthcare Inc. announced today that Vista Hospital of Baton Rouge, LLC (VHBR), an indirect majority-owned subsidiary of Dynacq, filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas.

VHBR will continue to operate its business and manage its property as a "debtor in possession" under the jurisdiction of the bankruptcy court. VHBR operates Vista Surgical Hospital of Baton Rouge, a 35-bed facility with four surgical suites. The Baton Rouge facility's primary areas of practice include bariatric surgery, orthopedic surgery, general surgery, pain management, and cosmetic surgery.

VHBR filed for bankruptcy protection because VHBR is unable to pay the alleged damages sought by, and the costs of defending against, a lawsuit filed by Liljeberg Enterprises International, LLC in September 2003 against both Dynacq and VHBR in the 24^th Judicial District Court for the Parish of Jefferson in Louisiana (case number 598-564).

The lawsuit alleges that the plaintiff is owed damages in excess of $1 million for costs of goods and services rendered for pharmacy operations at the Baton Rouge facility under a contract which plaintiff had entered into with VHBR. The plaintiff has asserted claims for breach of contract, fraud, negligence, fraudulent misrepresentation, negligent misrepresentation, civil conspiracy and gross negligence. Although the company believes that the bankruptcy filing automatically stays the lawsuit, Dynacq and VHBR intend to continue to vigorously defend against the allegations made in the lawsuit but cannot predict the ultimate outcome of the claims asserted in the lawsuit or whether such claims will have a material adverse effect on their financial condition. Although VHBR intends to propose a plan of reorganization to fully pay all creditors, Dynacq cannot predict the outcome of the Chapter 11 proceeding or whether the proceeding will have a material adverse effect on Dynacq's financial condition.

Source: Dynacq Healthcare, Inc.