UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS WACO DIVISION

Transcription

1 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS WACO DIVISION x IN RE CENTRAL FREIGHT LINES : Civil Action No. W-04-CA-177 SECURITIES LITIGATION : x NOTICE OF PROPOSED SETTLEMENT OF CLASS ACTION, MOTION FOR ATTORNEYS FEES AND SETTLEMENT FAIRNESS HEARING This Settlement Notice provides you with important information in connection with the settlement of a lawsuit concerning Central Freight Lines, Inc. ( Central Freight ). Your rights may be affected by this Settlement Notice. If you wish to recover money you must act by April 15, You should read this Settlement Notice carefully. TO: ALL PERSONS AND ENTITIES WHO PURCHASED OR OTHERWISE ACQUIRED THE COMMON STOCK OF CENTRAL FREIGHT (1) PURSUANT TO CENTRAL FREIGHT S DECEMBER 12, 2003 INITIAL PUBLIC OFFERING OR (2) FROM DECEMBER 12, 2003 THROUGH AND INCLUDING MARCH 16, 2005 (THE SETTLEMENT CLASS ). A federal court authorized this notice. This is not a solicitation from a lawyer. The Settlement will provide a settlement fund of $2,600,000, plus interest ( Settlement Fund ) for the benefit of investors who purchased or otherwise acquired shares of Central Freight common stock from December 12, 2003 through and including March 16, 2005 (the Settlement Class Period ). The Settlement represents an average recovery of $.14 per share (for the 18 million outstanding shares available for purchase). These averages are estimates and are before deduction of any Court approved fees and expenses. See Question 8 below for a more detailed explanation. The Settlement resolves class litigation (the Action ) over whether Central Freight misled investors about the Company s business, operations and future prospects and whether Central Freight s alleged misrepresentations and omissions inflated the price of Central Freight s common stock, and caused financial injury to the investing public. Lead Counsel will apply to the Court for an award of attorneys fees from the Settlement Fund not to exceed twenty-five percent (25%), and reimbursement of expenses of no greater than $50,000, or an average of $.035 per share. Your actual recovery, if any, may vary depending on your purchase or acquisition price and sales price and the number of Proof of Claim and Release forms that are filed. Lead Counsel has litigated the Action on a contingent fee basis, and has advanced the expenses of litigation with the expectation that if it was successful in recovering money for the Settlement Class, Lead Counsel would receive fees and be reimbursed for its expenses from the Settlement Fund, as is customary in this type of litigation. Your legal rights are affected whether you act, or do not act. Read this notice carefully. YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLEMENT: SUBMIT A CLAIM FORM BY APRIL 15, 2007 EXCLUDE YOURSELF BY FEBRUARY 4, 2007 OBJECT BY FEBRUARY 4, 2007 GO TO A HEARING ON FEBRUARY 23, 2007 DO NOTHING The only way to receive a payment. Get no payment. This is the only option that allows you to ever be part of any other lawsuit against Central Freight, Robert V. Fasso, Jerry C. Moyes, Jeffrey A. Hale and the Released Persons about the legal claims being released in this Action. See Question 13 below. Write to the Court about why you do not like the Settlement. Ask to speak in Court about the fairness of the Settlement. You will receive no payment, and give up your right to file your own lawsuit or participate in any other lawsuit against Central Freight, Robert V. Fasso, Jerry C. Moyes, Jeffrey A. Hale and the Released Persons concerning the legal claims being released in this Action. These rights and options and the deadlines to exercise them are explained in this Settlement Notice. The Court in charge of this Action still has to decide whether to approve the Settlement. Payments will be made if the Court approves the Settlement, the Settlement becomes final after the resolution of all appeals, and after the claims processing procedure is complete. Further information regarding this Settlement may be obtained by contacting Lead Counsel: Michael K. Yarnoff or Kay E. Sickles, Schiffrin & Barroway, LLP, 280 King of Prussia Road, Radnor, PA 19087; Telephone: Statement of Recovery Lead Plaintiff estimates that approximately 18 million shares of Central Freight common stock were purchased or otherwise acquired during the Settlement Class Period from December 12, 2003 through and including March 16, 2005, and damaged as a result of the purported

2 acts or omissions alleged in the Action. Lead Plaintiff estimates that the average recovery per damaged share of Central Freight common stock under the Settlement will be $.14 per damaged share before the deduction of attorneys fees, costs and expenses, as approved by the Court. The actual recovery per damaged share will depend on: (1) the number of claims filed; (2) when Settlement Class Members purchased or otherwise acquired their shares during the Settlement Class Period; (3) whether Settlement Class Members either sold their shares during the Settlement Class Period, or held their shares past the end of the Settlement Class Period; (4) administrative costs, including the costs of notice, for the Action; and (5) the amount awarded by the Court for attorneys fees, costs and expenses. Distributions to Settlement Class Members will be made based on the Plan of Allocation set forth in this Settlement Notice. The Status of the Lawsuit On June 25, 2004, the first of three class action complaints was filed against Central Freight, Robert V. Fasso, Jerry C. Moyes and Jeffrey A. Hale (the Individual Defendants ) (collectively, the Defendants ) on behalf of a class of public investors who purchased or otherwise acquired the common stock of Central Freight during the Settlement Class Period. By order dated September 3, 2004, the Court consolidated all three cases. Lead Plaintiff filed its Consolidated Amended Class Action Complaint (the Complaint ) on May 9, The Complaint alleged that Central Freight and the Individual Defendants filed a false and misleading Registration Statement and Prospectus with the United States Securities and Exchange Commission ( SEC ) in connection with the Company s December 12, 2003 Initial Public Offering ( IPO ). More specifically, the Complaint alleged that the Registration Statement failed to disclose material adverse information regarding Central Freight s business, operations and future prospects. The Complaint further alleged that Defendants continued to issue false and misleading statements through other public communications, concerning, among other things, Central Freight s acquisition of Eastern Oregon Fast Freight, Inc. ( EOFF ), the condition of the Company s internal controls and the insurance and claims expenses recorded by the Company. In addition, the Complaint alleged that Defendants conduct artificially inflated the price of Central Freight s common stock, injuring Central Freight s shareholders who purchased or otherwise acquired the common stock during the Settlement Class Period. On July 8, 2005, the Defendants moved to dismiss the Complaint. Lead Plaintiff filed its opposition to the motion to dismiss on August 23, 2005, and on September 12, 2005, Defendants filed their reply memorandum in support of their motion to dismiss. The Defendants deny that they are liable to the Lead Plaintiff or the Settlement Class and deny that Lead Plaintiff or the Settlement Class suffered any damages. Thereafter, in the beginning of 2006, Lead Plaintiff and the Defendants began to discuss the possibility of a settlement of the Action. Over the course of the next five months, Lead Plaintiff and the Defendants engaged in telephonic negotiations and a face-to-face meeting; finally reaching a tentative agreement to resolve the Action on June 30, The Circumstances of the Settlement The principal reason for the Settlement is to provide a benefit to the Settlement Class now. This benefit must be compared to the risk that no recovery might be achieved after a contested trial and likely appeals, possibly years into the future. While Lead Counsel was prepared to go to trial and was confident in its ability to present a case, Lead Counsel recognizes that a trial is a risky proposition and that Lead Plaintiff and the Settlement Class might not have prevailed on all their claims. Among other things, Defendants have denied that they made any false or misleading representations in connection with the IPO or at any time thereafter in SEC filings or otherwise. Defendants also deny that Central Freight s shareholders have suffered any damages in connection with or as a result of any allegedly false or misleading statements made by the Defendants. The claims advanced by the Settlement Class involve numerous complex legal and financial issues, requiring extensive expert testimony, which would add considerably to the expense and duration of the Action. Even after extensive investigation, questions remain regarding the extent of Defendants liability, if any, to the extent a jury might find them liable, and the true measure of the Settlement Class damages, if any. In addition, even if Lead Plaintiff prevailed at trial, it was not assured, given Central Freight s present financial condition and limited insurance coverage, that Lead Plaintiff would succeed in collecting on a judgment for greater than, if even an amount equal to, the proposed Settlement. Therefore, Lead Counsel has recommended the Settlement to Lead Plaintiff. [END OF COVER PAGE] WHAT THIS SETTLEMENT NOTICE CONTAINS BASIC INFORMATION PAGE 1. Why did I receive this notice package? What is this lawsuit about? Why is this Action a class action? Why is there a settlement? How do I know if I am part of the Settlement? Are there exceptions to being included in the Settlement Class? I am still not sure I am included? What does the Settlement provide? How much will my payment be? How can I receive a payment? When will I receive my payment? What am I giving up to receive a payment? How do I exclude myself from the Settlement? If I do not exclude myself, can I sue Central Freight, the Individual Defendants or the other Released Persons later for the claims that I am releasing in this Settlement? If I exclude myself, can I obtain a payment from this Settlement? Do I have a lawyer in this case? How will the lawyers be paid? How do I notify the Court that I do not like the Settlement? What is the difference between objecting and requesting exclusion from the Settlement? When and where will the Court decide whether to approve the Settlement? Do I have to attend the hearing? If I do attend, may I speak at the hearing?...8 2

3 22. What will happen if I do nothing at all?...8 SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES...8 GETTING MORE INFORMATION Why did I receive this notice package? BASIC INFORMATION You or someone in your family may have purchased or otherwise acquired shares of Central Freight common stock pursuant to the December 12, 2003 IPO, or from December 12, 2003 through and including March 16, If the description above applies to you or someone in your family, you have a right to know about the proposed Settlement of this Action, and about all of your options. 2. What is this lawsuit about? Defendant Central Freight is a non-union, regional less-than-truckload ( LTL ) carrier headquartered in Waco, Texas. As an LTL carrier, Central Freight transports multiple freight shipments from multiple customers on a single truck. Throughout the Settlement Class Period, Central Freight described itself as one of the ten largest LTL carriers in the nation. As stated above, the lawsuit claimed that Central Freight and the Company s former Chairman of the Board, Jerry C. Moyes, the Company s Chief Executive Officer and President, Robert V. Fasso, and the Company s Chief Financial Officer, Jeffrey A. Hale, filed a false and misleading Registration Statement and Prospectus with the SEC in connection with the Company s December 12, 2003 IPO which failed to disclose certain material facts regarding Central Freight s future business, claims accruals and internal controls. The lawsuit also claimed that, after the Company s IPO, Defendants continued to issue false and misleading statements and concealed material adverse information concerning the true nature of the Company s business, operations and future prospects, including Central Freight s acquisition of EOFF, the Company s continual lack of internal controls and its excessive claim rates. According to the lawsuit, Defendants alleged conduct caused the price of Central Freight s common stock to be inflated artificially, causing damages to the Settlement Class Members. The Action seeks money damages against the Defendants for violations of the federal securities laws. The Defendants deny Lead Plaintiff s allegations. 3. Why is this Action a class action? In a class action, one or more people called lead plaintiffs or class representatives (in this case, Lead Plaintiff Oklahoma Firefighters Pension and Retirement System), sue on behalf of people who have similar claims. All these people and/or entities are referred to collectively as a class, or individually as class members. One court resolves the issues for all class members, except for those who exclude themselves from the class. 4. Why is there a settlement? The Court did not decide in favor of Lead Plaintiff or the Defendants. Instead, Lead Plaintiff and Defendants agreed to a settlement. As explained above, the Lead Plaintiff and its attorneys think the Settlement is best for all Settlement Class Members. 5. How do I know if I am part of the Settlement? The Settlement Class includes all persons and entities who purchased or otherwise acquired the common stock of Central Freight from December 12, 2003 through and including March 16, Also included in the Settlement Class are persons and entities who acquired their shares pursuant to Central Freight s December 12, 2003 IPO. 6. Are there exceptions to being included in the Settlement Class? Yes. Excluded from the Settlement Class are Defendants, the officers and directors of the Company, members of their immediate families (parents, brothers, sisters, children, father-in-law, mother-in-law, sister-in-law, brother-in-law, and any other relatives who are financially supported) and their legal representatives, heirs, successors or assigns and any affiliate or entity in which any Defendant has or had a controlling interest. Also excluded from the Settlement Class are any putative Settlement Class Members who exclude themselves by timely and validly filing a Request for Exclusion in accordance with the requirements set forth in this Settlement Notice as described in Question 13 below. If one of your mutual funds purchased or owns shares of Central Freight common stock, that alone does not make you a Settlement Class Member. You are a Settlement Class Member only if you directly purchased or otherwise acquired shares of Central Freight common stock during the Settlement Class Period. Contact your broker to see if you purchased Central Freight common stock during that period. 7. I am still not sure whether I am included? If you are still not sure whether you are included, you can ask for free help. You can call or visit for more information. Or you can fill out and return the claim form described on page 6, in Question 10, to see if you qualify. 8. What does the Settlement provide? The Defendants have agreed to create a $2,600,000 fund. The balance of this fund, after deduction of Court-awarded attorneys fees and expenses and settlement administration costs will be divided among all Settlement Class Members who send in valid claim forms. 3

4 9. How much will my payment be? PLAN OF ALLOCATION OF NET SETTLEMENT FUND AMONG SETTLEMENT CLASS MEMBERS If you are entitled to a payment, your share of the Net Settlement Fund will depend on the number of valid claim forms that Settlement Class Members submit, how many shares of Central Freight common stock you purchased or otherwise acquired, and when you bought, acquired and sold your shares. By following the Plan of Allocation described here, you can calculate your Recognized Claim. The $2,600,000 cash settlement amount and the interest earned on that amount is the Settlement Fund. The Settlement Fund, less taxes owed, administrative costs (including costs of notice) and attorneys fees and expenses as awarded by the Court is the Net Settlement Fund. The Claims Administrator will distribute the Net Settlement Fund according to the Plan of Allocation after the deadline has passed for submission of Proof of Claim and Release forms ( Proofs of Claim ). The Claims Administrator shall determine each Authorized Claimant s pro rata share of the Net Settlement Fund based upon each Authorized Claimant s Recognized Claim and Class Members will be eligible to participate in the distribution of the Net Settlement Fund only if he, she, or it has a net loss on all transactions in Central Freight common stock during the Settlement Class Period. Each Person claiming to be an Authorized Claimant shall be required to submit a separate Proof of Claim signed under penalty of perjury and supported by such documents as specified in the Proof of Claim as are reasonably available to the Authorized Claimant. All Proof of Claim forms must be postmarked or received by April 15, 2007, addressed as follows: Central Freight Lines Securities Litigation c/o The Garden City Group, Inc. Claims Administrator P.O. Box 9000 #6450 Merrick, NY Unless otherwise ordered by the Court, any Settlement Class Member who fails to submit a properly completed and signed Proof of Claim within such period, or such other period as may be ordered by the Court, shall be forever barred from receiving any payments pursuant to the Stipulation and Agreement of Settlement ( Stipulation ), but will in all other respects be subject to the provisions of the Stipulation and the Order and Final Judgment entered by the Court. I. RECOGNIZED CLAIM CALCULATIONS The following proposed Plan of Allocation for calculating Recognized Claims for Central Freight common stock reflects the proposition that the price of Central Freight common stock was artificially inflated in the IPO and throughout the entire Settlement Class Period. The Plan of Allocation takes into account the price drops which accompanied certain disclosures that were made during the Settlement Class Period regarding the conduct underlying the allegations of the Complaint. This Plan of Allocation is not a formalized damage study, but rather, a simplified methodology designed solely to compare one class member to another based upon stock drops that followed certain disclosures during the Settlement Class Period. The methodology does not adjust the stock price reaction to eliminate the effects, if any, attributable to general market or industry conditions or to eliminate company specific factors affecting the stock price which may have been unrelated to the alleged wrongdoing. In developing this Plan of Allocation for transactions in Central Freight common stock, Lead Counsel has considered, among other things, the impact of the following two disclosures: (1) the drop in Central Freight s per share common stock price on March 17, 2004, following Central Freight s March 16, 2004 disclosure that it expected substantially lower earnings for the first quarter of 2004 due to accelerated expansion into the Pacific Northwest through its acquisition of EOFF. Following this disclosure, the closing price of Central Freight common stock declined to $12.85 per share on March 17, 2004 from the March 16, 2004 closing price of $18.20 per share of common stock, a drop of $5.335 per share of common stock. (2) the drop in Central Freight s per share common stock price on March 17, 2005, following Central Freight s March 16, 2005 disclosure that it had material weaknesses in its internal controls. Following this disclosure, the closing price of Central Freight common stock declined to $5.04 per share on March 17, 2005 from the March 16, 2005 closing price of $6.80 per share of common stock, a drop of $1.76 per share of common stock. The total effect on the per share price of Central Freight s common stock as a result of the disclosures listed above was $7.11 per share. In addition, on December 12, 2003, Central Freight had an Initial Public Offering ( IPO ) of its common stock for $15.00 per share. A. COMPUTING RECOGNIZED CLAIMS FOR CENTRAL FREIGHT COMMON STOCK: 1. For common stock purchased and/or acquired between December 12, 2003 and the opening of trading on March 17, 2004 (Note: see (3) below for an alternative measure of Recognized Claim calculations for shares acquired pursuant to the December 12, 2003 IPO): a. That were sold prior to the opening of trading on March 17, 2004, the Recognized Claim shall be zero. b. That were sold between the opening of trading on March 17, 2004 and the close of trading on March 16, 2005, the Recognized Claim shall be the LESSER OF: (1) $5.35 per share; or (2) the difference between the purchase price and sales price per share, if such number is a positive number. c. That were still held at the opening of trading on March 17, 2005, the Recognized Claim shall be the LESSER OF: 4

5 (1) $7.11 per share; or (2) the difference between the purchase price and $3.27 per share, if such number is a positive number For common stock purchased and/or acquired between the opening of trading on March 17, 2004 and the close of trading on March 16, 2005: a. That were sold between the opening of trading on March 17, 2004 and the close of trading on March 16, 2005, the Recognized Claim shall be zero: b. That were still held at the close of trading on March 16, 2005, the Recognized Claim shall be the LESSER OF: (1) $1.76 per share; or (2) the difference between the purchase price and $3.27 per share of common stock, if such number is a positive number. 3. Alternatively, for shares of Central Freight common stock acquired pursuant to the December 12, 2003 IPO, the Recognized Claim shall be the amount calculated below if it is greater than the amount calculated under (1) or (2) above: a. For such shares sold at a loss on or before March 16, 2005, an Authorized Claimant s Recognized Claim shall mean the difference, if a loss, between the $15.00 per share December 12, 2003 IPO price and the price for which such shares were sold. b. For shares sold anytime after March 16, 2005 for more than $3.27 per share, an Authorized Claimant s Recognized Claim shall mean the difference, if a loss, between the $15.00 per share December 12, 2003 IPO price and the price for which such shares were sold. c. For shares (i) sold anytime after March 17, 2005 for less than $3.27 per share, or (ii) still owned at the time of submission of the Proof of Claim, an Authorized Claimant s Recognized Claim shall mean $11.73 per share (the difference between the $15.00 per share December 12, 2003 IPO price and $3.27 per share). III. NETTING RULES For purposes of determining whether a Settlement Class Member has a gain or loss in Central Freight common stock, any gain stemming from a sale of Central Freight common stock shall be used to offset losses stemming from purchases and/or acquisitions of Central Freight common stock. IV. OTHER PROVISIONS OF THE PLAN To the extent there are sufficient funds in the Net Settlement Fund, each Authorized Claimant will receive an amount equal to the Authorized Claimant s claim, as defined below. If, however, the amount in the Net Settlement Fund is not sufficient to permit payment of the total claim of each Authorized Claimant, then each Authorized Claimant shall be paid the percentage of the Net Settlement Fund that each Authorized Claimant s claim bears to the total of the claims of all Authorized Claimants. No distribution will be made on a claim where the potential distribution amount is less than $ Payment in this manner shall be deemed conclusive against all Authorized Claimants. Under no circumstances will a Recognized Claim exceed the out-of-pocket loss, not including commissions, taxes or other fees. The Court has reserved jurisdiction to allow, disallow or adjust the claim of any Settlement Class Member on equitable grounds. Each Claimant is deemed to have submitted to the jurisdiction of the Court with respect to the Claimant s claim, and the claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to that Claimant s status as a Settlement Class Member and the validity and amount of that Claimant s claim. No discovery shall be allowed on the merits of the Action. The date of purchase, acquisition or sale is the contract or trade date and not the settlement date. All profits will be subtracted from all losses to determine the net recognized claim of each Settlement Class Member. For Settlement Class Members who held Central Freight common stock at the beginning of the Settlement Class Period, before the IPO, or made multiple purchases, acquisitions or sales during the Settlement Class Period, the first-in, first-out ( FIFO ) method will be applied to such holdings, purchases, acquisitions and sales for purposes of calculating a Recognized Claim. Under the FIFO method, sales during the Settlement Class Period will be matched, in chronological order, first against your holdings. In processing claims, sales will be matched in chronological order, by trade date, first against the common stock held as of the close of trading on December 11, 2003 (the last day before the Settlement Class Period begins) or before the IPO, and then against the purchases and/or acquisitions during the Settlement Class Period. Therefore, you need to list all purchases, acquisitions, and sales of Central Freight common stock during the relevant time period. Brokerage commissions and transfer taxes paid by you in connection with your purchase and sale of Central Freight common stock should be included in the total purchase price and net of the total proceeds. Payments will be final and conclusive against all Settlement Class Members. All Settlement Class Members whose claims are not approved by the Court will be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of the 1 Pursuant to Sections 21(D)(e)(1) and 21(D)(e)(2) of the Private Securities Litigation Reform Act of 1995, the award of damages to the plaintiff shall not exceed the difference between the purchase price paid by the plaintiff for the subject security and: (1) for plaintiffs who still held shares at the end of the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated, the mean trading price of that security during the 90-day period; or (2) for plaintiffs who sold shares during the 90-day period, the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sold the security. The mean (average) closing price of Central Freight common stock during the 90-day period beginning on March 16, 2005 and ending on June 14, 2005 was $

6 Settlement, including the terms of the Order and Final Judgment to be entered in the Action, and will be barred from bringing any Released Claim against any Released Persons (as those terms are defined in the Stipulation and Agreement of Settlement, which is available on the Internet at or through the mail upon request). 10. How can I receive a payment? To qualify for payment, you must submit a Proof of Claim and Release form. A Proof of Claim is enclosed with this Settlement Notice. You also may obtain a Proof of Claim on the Internet at Read the instructions carefully, fill out the form, include all the documents the form asks for, sign it, and mail it postmarked no later than April 15, When will I receive my payment? The Court will hold a hearing on February 23, 2007 (the Settlement Hearing ), to decide whether to approve the Settlement. Even if the Court approves the Settlement, it could take more than a year before the Net Settlement Fund is distributed to the Settlement Class Members. One reason that it may take more than a year for the Net Settlement Fund to be distributed is that delays could be caused by the filing of appeals. The other reason that it may take more than a year for the Net Settlement Fund to be distributed is that once the Settlement has been approved, and any appeals are resolved, the Claims Administrator must process all of the Proofs of Claim. The processing is a complicated process and will take many months. 12. What am I giving up to receive a payment? Unless you exclude yourself, you are staying in the Settlement Class, and that means that, if the Settlement is approved, you will release all Released Claims (as defined below) against the Released Persons (as defined below). Released Claims means any and all claims, debts, demands, rights or causes of action or liabilities (including, but not limited to, any claims for damages, interest, attorneys fees, expert or consulting fees, and any other costs, expenses or liability), without regard to the subsequent discovery or existence of such different or additional facts, including both Known Claims and Unknown Claims (as defined below), whether based on federal, state, local, statutory or common law or any other law, rule or regulation, whether fixed or contingent, suspected or unsuspected, whether or not concealed or hidden, accrued or un-accrued, liquidated or un-liquidated, at law or in equity, matured or unmatured, whether class or individual in nature, (i) that have been asserted in this Action by the Lead Plaintiff, any of the Settlement Class Members or any of their attorneys against any of the Released Persons; or (ii) that could have been asserted in the Action or in any forum by the Lead Plaintiff, any of the Settlement Class Members or any of their attorneys or the successors and assigns of any of them against any of the Released Persons which arise out of or are based upon or relate in any way to the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or referred to in the Complaint and which relate to the purchase or acquisition of the common stock of Central Freight during the Settlement Class Period or pursuant to the December 12, 2003 IPO. Unknown Claims means any and all Released Claims that Lead Plaintiff or any Settlement Class Member do not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons, and any and all Released Defendants Claims that any Defendant does not know or suspect to exist in his or its favor. Such Unknown Claims include, but are not limited to, all Released Claims and Released Defendants Claims that, if known by the Lead Plaintiff or any Settlement Class Member or any Defendant, respectively, might have affected his, her or its settlement and releases set forth herein, or might have affected his, her or its decision not to object to this Settlement or not to exclude him, her or itself from the Settlement Class. With respect to any and all Released Claims and Released Defendants Claims, the Parties stipulate and agree that upon the Effective Date, the Lead Plaintiff and the Defendants shall expressly, and each Settlement Class Member shall be deemed to have, and by operation of the Order and Final Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to Cal. Civ. Code 1542, which provides that: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. Lead Plaintiff and Settlement Class Members may hereafter discover facts in addition to or different from those that any of them now knows or believes to be true with respect to the subject matter of the Released Claims, but Lead Plaintiff shall expressly, and each Settlement Class Member, upon the Effective Date, shall be deemed to have, and by operation of the Judgment shall have fully, finally, and forever settled and released any and all Released Claims, Lead Plaintiff and the Defendants acknowledge, and Settlement Class Members by operation of the Judgment shall be deemed to have acknowledged, that the foregoing waiver was separately bargained for and is a key and fundamental element of the Settlement of which this release is a part. Released Persons means any and all of the Individual Defendants, Central Freight, and each of a Defendant s past or present directors, officers, principals, employees, partners, insurers, agents, controlling shareholders, attorneys, accountants or auditors, consultants, advisors, investment advisors, personal or legal representatives, predecessors, successors, parents, subsidiaries (whether or not directly or wholly owned), divisions, joint ventures, assigns, spouses, any member of an Individual Defendants immediate family (parents, brothers, sisters, children, father-in-law, mother-in-law, sister-in-law, brother-in-law, and any other relatives who are financially supported), executors, administrators, custodians, beneficiaries, heirs, related or affiliated entities, any entity in which a Defendant has a controlling interest, or any trust of which an Individual Defendant is the settlor or which is for the benefit of the Individual Defendant s family. If you remain a member of the Settlement Class, all of the Court s orders will apply to you and legally bind you. 6

7 13. How do I exclude myself from the Settlement? You can exclude yourself from the Settlement. If you do not want a payment from the Settlement, but you want to keep the right to sue or continue to sue Central Freight, the Individual Defendants or any of the other Released Persons about the claims you would be releasing in this Settlement, then you must take steps to exclude yourself from the Settlement. This is sometimes referred to as opting out of the Settlement Class. To exclude yourself from the Settlement, you must send a letter by mail saying that you want to be excluded from the In re Central Freight Lines Securities Litigation. Be sure to include your name, address, telephone number, information concerning your purchase(s), acquisition(s) and sale(s) of Central Freight common stock during the Settlement Class Period, including the number of shares and the dates of each purchase, acquisition and sale, and your signature. You cannot exclude yourself on the telephone or by . You must mail your exclusion request postmarked no later than February 4, 2007 to: Central Freight Lines Securities Litigation Exclusions c/o The Garden City Group, Inc. Claims Administrator P.O. Box 9000 #6450 Merrick, NY If you exclude yourself from the Settlement Class, you will not receive a settlement payment, and you cannot object to the Settlement. If you exclude yourself, you will not be legally bound by anything that happens in this Action, and you may be able to sue (or continue to sue) the Defendants in the future. 14. If I do not exclude myself, can I sue Central Freight, the Individual Defendants or the other Released Persons later for the claims that I am releasing in this Settlement? No. Unless you exclude yourself, you give up any right to sue Central Freight, the Individual Defendants and the other Released Persons for the claims that this Settlement releases. You must exclude yourself from the Settlement Class to bring your own lawsuit. Remember, the exclusion deadline is February 4, If I exclude myself, can I obtain a payment from this Settlement? No. If you exclude yourself, do not send in a claim form to ask for any money. But, you may sue or be part of a different lawsuit involving the claims released by this Settlement against the Released Persons. 16. Do I have a lawyer in this case? The Court ordered that the following lead counsel and their law firm will represent you and the other Settlement Class Members: Michael K. Yarnoff and Kay E. Sickles, Schiffrin & Barroway, LLP, 280 King of Prussia Road, Radnor, PA The Schiffrin & Barroway lawyers are called Lead Counsel. If you want to be represented by your own lawyer, you may hire one at your own expense. 17. How will the lawyers be paid? Lead Counsel is moving the Court to award attorneys fees from the Settlement Fund in an amount not greater than twenty-five percent (25%) of the Settlement Fund and for reimbursement of their expenses up to a maximum amount of $50,000, plus interest on such expenses at the same rate as earned by the Settlement Fund. Lead Counsel, without further notice to the Settlement Class, may subsequently apply to the Court for fees and expenses incurred in connection with administering and distributing the settlement proceeds to the members of the Settlement Class and any proceedings after the Settlement Hearing. 18. How do I notify the Court that I do not like the Settlement? If you are a Settlement Class Member you can object to the Settlement if you do not like any part of it. To object, you must send a letter to the persons listed below saying that you are a Settlement Class Member in the In re Central Freight Lines Securities Litigation, that you object to the Settlement and the reasons why you object. In your objection, you must include your name, address, telephone number, and your signature. You must also include information concerning your purchase(s), acquisition(s) and sale(s) of Central Freight common stock during the Settlement Class Period, including the number of shares and the dates of each purchase, acquisition and sale. Mail the objection postmarked no later than February 4, 2007, to: COURT LEAD COUNSEL DEFENSE COUNSEL Honorable Walter S. Smith, Jr. Chief United States District Judge United States District Court for the Western District of Texas, Waco Division U.S. Courthouse 800 Franklin Ave Waco, Texas Michael K. Yarnoff Kay E. Sickles Schiffrin & Barroway, LLP 280 King of Prussia Road Radnor, PA Tel: (610) Fax: (610) Lloyd Winawer Nicole Healy Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA Tel: (650) Fax: (650)

8 19. What is the difference between objecting and requesting exclusion from the Settlement? Objecting is simply telling the Court that you do not like something about the Settlement. You can object only if you stay in the Settlement Class. Excluding yourself is telling the Court that you do not want to be part of the Settlement Class. If you exclude yourself, you have no basis to object because the Action no longer affects you. 20. When and where will the Court decide whether to approve the Settlement? The Court will hold a Settlement Hearing at 9:30 a.m. on February 23, 2007, at the United States District Court for the Western District of Texas, Waco Division, U.S. Courthouse, 800 Franklin Avenue, Waco, Texas, in Courtroom #1. At this hearing, the Court will consider whether the Settlement and the Plan of Allocation are fair, reasonable and adequate. If there are written objections, the Court will consider these objections. The Court will also listen to people who have asked in writing by February 4, 2007 to speak at the hearing. The Court may also decide how much to award Lead Counsel for attorneys fees and expenses. 21. Do I have to attend the hearing? If I do attend, may I speak at the hearing? No. You do not have to attend the hearing. Lead Counsel will answer any questions the Court may have. If you plan to attend, you may ask the Court for permission to speak at the Settlement Hearing. To do so, you must include with your objection, described in Question 18 above, the statement, I hereby give notice that I intend to appear at the Settlement Hearing in In re Central Freight Lines Securities Litigation. Be sure to include your name, address and telephone number, identify the date(s), price(s), and number(s) of shares of all purchase(s), acquisition(s) and sale(s) of the common stock of Central Freight you made during the Settlement Class Period, and sign the letter. If you intend to have any witnesses testify or to introduce any evidence at the Settlement Hearing, you must list the witnesses and evidence in your objection. Your Notice of Intention to Appear must be postmarked no later than February 4, 2007, and be sent to the Clerk of the Court, Lead Counsel and Defense Counsel, at the addresses shown in the answer to Question 18. You cannot speak at the hearing if you exclude yourself. 22. What happens if I do nothing at all? If you do nothing, you will not receive any money from this Settlement. But, unless you exclude yourself, you will not be able to start a lawsuit, continue with a lawsuit, or be part of any other lawsuit against Central Freight, the Individual Defendants and the other Released Persons about the claims released by this Settlement, ever again. SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES The Court has Ordered that if you purchased the common stock of Central Freight during the Settlement Class Period as nominee for a beneficial owner, then within seven (7) calendar days after you receive this Settlement Notice, you must either: (a) send a copy of this Settlement Notice and the accompanying Proof of Claim and Release by first class mail to all such beneficial owners; or (b) provide a list of the names and addresses of such beneficial owners to the Claims Administrator: Central Freight Lines Securities Litigation c/o The Garden City Group, Inc. Claims Administrator P.O. Box 9000 #6450 Merrick, NY GETTING MORE INFORMATION This notice summarizes the proposed Settlement. More details are contained in the Stipulation and Agreement of Settlement. You can obtain a copy of the Stipulation by visiting If you have questions regarding how to obtain copies of documents related to this Settlement, completing your Proof of Claim and Release, correspondence you have received from the Claims Administrator, or the calculation of your Recognized Claim, you may contact the Claims Administrator for the distribution of the Settlement Fund toll free at or write Central Freight Lines Securities Litigation, c/o The Garden City Group, Inc., Claims Administrator, P.O. Box 9000 #6450, Merrick, NY, For further information regarding this Settlement, you may contact Lead Counsel: Michael K. Yarnoff Kay E. Sickles Schiffrin & Barroway, LLP 280 King of Prussia Road Radnor, PA Telephone: (610) info@sbclasslaw.com DO NOT CONTACT THE COURT 8