Interview with Gilbert Scharf, Chairman, Maxor Financial Group Inc.

THE WALL STREET TRANSCRIPT

*****

67 Wall Street, New York, NY 10005

VOICE: (212) 952-7400 FAX: (212) 668-9842; (212) 668-9858

Website: http://www.twst.com E-mail: [email protected]

CE17610B

April 29, 2002

GILBERT D. SCHARF

Chairman, President and CEO

Maxcor Financial Group Inc.

One New York Plaza, 16th Floor

New York, NY 10292

(212) 778-0173

TWST: Could you give us a short overview and summary of Maxcor?

Mr. Scharf: Maxcor was formed in 1994 and in August 1996 we acquired

Euro Brokers Investment Corporation. One of the attractive things about the Euro Brokers acquisition at that time was its size in terms of its revenue base. Euro Brokers was established in 1970.

After closing the Euro Brokers acquisition, we spent a number of years working to improve, restructure, and to focus the operations. Euro Brokers, is a large inter-dealer, inter-bank broker. Its customers are the world’s biggest banks, investment banks, and security firms in the financial services industry. We provide them with liquidity and market information in the various markets in which we operate. I will characterize those markets in very general terms as being interest rate derivatives, including swaps and options; money market products such as overnight fed funds, fixed-term deposits, certificate of deposits and other money market instruments; and securities which include U.S. Treasury, mortgage backed, and federal agency repurchase agreements, and bonds and discount notes issued by government sponsored entities such as: Fannie Mae, Freddie Mac, Federal Home Loan Bank; emerging market debt including Brady bonds, global bonds, and euro bonds that are issued by emerging market corporate entities and Mexican money market instruments. Other securities that we broker include convertible bonds and corporate bonds. Recently, we started to broker credit derivatives on corporate bonds and emerging market bonds.

Those are Euro Brokers main product lines within our inter-dealer broker operation. As a company, we are focused primarily on the three main financial centers in the world: New York, London and Tokyo. Some or all of these products are brokered out of our various offices. For instance, in the interest rate derivative market, we primarily broker swaps and interest rate options in US dollars in New York, but we have a major dollar presence in London as well and a smaller presence in Tokyo. In London, we broker interest rate derivatives denominated in the Euro, but also in other currencies that are outside the Euro, such as sterling, the Scandinavian currencies, the Swiss franc and some of the emerging market currencies. In Tokyo, we broker primarily yen denominated interest rate derivatives.

Within the Maxcor Group, we have a NASD regulated broker-dealer: Maxcor Financial Inc. It is in this broker-dealer that we conduct our inter-dealer securities businesses, as well as our municipal bond business and our newly formed leveraged finance business. We act as a dealer and trade mainly with the big institutional buyers and sellers of municipal debt securities and high yield and distressed securities. Both these businesses have an added-value research component. In the leveraged finance business we also provide conflict-free corporate finance, restructuring, and merger and acquisition advice and intend to participate in private placements financings and public underwritings.

The difference between the company at the time we acquired it and now is that we are more focused, more profitable, and have started to diversify. We are very realistic in our approach to our inter-dealer business and recognize that we have to be in the top three or four of a product to achieve the profitability that we deem acceptable. Last year the financial markets were very active, and because of our focus and discipline we gained market share in virtually every one of our product groups. We anticipate that this trend will continue.

Our financial statements show that last year we grew revenues over 17%, despite having suffered the tragedy of losing 61 people on 9/11, as well as our worldwide headquarters at Two World Trade Center. We were able to deal with that enormous tragedy as a company because we made a decision early on that for us to succeed and to keep the company going it was essential for us to stay together as a firm in one location. Our company and our people suffered psychologically and emotionally. However, management and all our employees felt a responsibility to keep the company going. The responsibility was not only for the company and the surviving employees and their families, but also for the families of those that we lost. We were very lucky to have a good friend in Prudential Securities, which offered us enough space to keep our company together in one location. We needed to be together to heal and rebuild. Over the past six months, we have been able to rebuild our infrastructure to the point where business generated by those desks we restored is at the same level as just prior to 9/11. We have hired close to 50 new people and while they will not replace the 61 great people that we lost, they bring a level of talent that is enabling us to maintain the standard of service that our customers deserve and we are committed to providing.

TWST: Who are the key executives today?

Mr. Scharf: One of the many attractions of our company is that it is very people-oriented, family-oriented and entrepreneurial at the same time. Our officers, directors and employees own a good chunk of our company, so obviously, there is a comity of interests with our outside shareholders in trying to distinguish the company and incentives for us to work hard to achieve superior financial results.

Being an entrepreneurial company, we run all of our businesses on the trading desks and our desk managers lead the charge from the middle of their operations. That is very important to us and one way in which we distinguish ourselves from certain of our competitors. We have very few managerial people sitting in offices. The senior management, including myself; our Chief Operating Officer, Keith Reihl; our Chief Financial Officer, Steve Vigliotti; and our General Counsel, Roger Schwed, are really the four people that do spend some of their time in offices and manage the business on a day-to-day basis. We are all located in our worldwide headquarters in New York.

Our London office is run by Robin Clark, who is a Director of the parent company, as well as the CEO of our London operations. Robin sits in the middle of the trading floor. The Tokyo office is managed on the trading desks as well.

TWST: Can you discuss your operations as a small-cap company?

Mr. Scharf: Although we have limited capital, which we need for regulatory purposes and for certain clearing memberships, most of our businesses within the inter-dealer interbank brokerage business do not use capital to support positions. However, our municipal business and our new leveraged finance business are a little different. We do allocate some capital to those businesses, which underpins our ability to take positions, albeit small positions. We have very strict position limits which are closely monitored by senior management. We have a number of clearing relationships that we use to clear our securities, and in many cases, they are substituting for us in terms of counterparty risk. In all cases, these clearing firms are a lot bigger than we are from a capital standpoint.

I think it is interesting to note that if you look at our balance sheet, it has never been as strong as it is today. Additionally over the last two to three years, we have reduced our share capitalization from approximately 11.3 Million shares outstanding to about 7.5 million shares outstanding today. The company has bought back over 4.5 million shares at much lower prices than where our share price is today. Also, we have virtually extinguished our debt. Our total debt today is under half a million dollars. We have eliminated most of the goodwill from our balance sheet, so we have a very clean and highly liquid balance sheet. If you look at the assets, our biggest are: cash, accounts receivable, clearing deposits, and securities owned, which together represent over 85% of all our assets, excluding failed securities settlements.

Our net worth is very solid and highly liquid. Our goal is to remain profitable and increase our net worth. Last year, even with 9/11, we had record earnings. We earned over $9 million net after tax, which was more than $1.15 per diluted share. And we are cautiously optimistic this year.

Many of our customers have downsized over the last year, and this has allowed us to hire some very talented people. We expect to see further industry consolidation. In spite of this, we continue to gain market share in many of our products. We are also on track to grow our company in some new strategic areas.

TWST: Can you talk about that discipline that you had on the capital management side that actually set the stage and helped you through the last six months?

Mr. Scharf: It was a combination of discipline, effort and planning. We manage our business on a day-to-day basis. We have worked hard at our business, and the hard work is being recognized in the market place.

It certainly was better for us not to have had much debt on the balance sheet, going into such a catastrophic event as 9/11. We were very lucky that the company had more than adequate insurance in terms of business interruption and insurance on the physical assets. Also, we have very good benefits for our employees, and very good life insurance benefits that went to the families of those that lost a loved one. I am very proud of how quickly we rebuilt our infrastructure and got back to business. We were fortunate to have a great technology staff who had already established adequate back-up procedures for our software and financial records, and who were also extremely resourceful and dedicated when it came to rebuilding our infrastructure. Euro Brokers was back in business just one week after 9/11, albeit in a limited way. That is pretty good testimony to the quality of our team.

TWST: How did the transition from the inter-dealer broker to a dealer impact your use of cash and capital as you look at the opportunity ahead? And does that play into where Tradesoft fits into the spectrum of opportunity?

Mr. Scharf: . We had originally licensed the Tradesoft technology and had a perpetual license with Tradesoft for a number of our products. We decided that it made sense to purchase Tradesoft, instead of just having a perpetual license, and did so in August 2000. Now Tradesoft is the platform for many of our businesses.

Tradesoft enables us to have electronic trading, straight-through processing to customers, and captures all the information that is imbedded in our businesses. It is these latter two functions that we are currently emphasizing. We have integrated Tradesoft with our existing MEB technology, middle office software. This captures the business we do at the point of trade, eliminates the paper, increases our efficiency and allows us to better manage trade execution risk at the time of execution.

For instance, our money market business is very much a ticket-driven business. Now all those tickets are created and processed electronically. Our system generates a transaction confirmation which immediately goes to the counter parties of the trade, either by encrypted e-mail or by facsimile. Tradesoft makes us more efficient and responsive to our customers’ needs.

Any business in which Maxcor acts as a dealer, such as our municipal bond business or leveraged finance business, is totally separate from the Euro Broker’s inter-dealer brokerage business. Given our capital base, expansion on the dealer side will be done on an highly

risk-averse basis. We are committed to providing added-value to our customers by bringing them quality investment ideas. We are situational in our approach to markets and always focused on value-oriented opportunities. We look to add value, differentiate ourselves, and get compensated for our ideas. There is a very important research component to our service. You should also know that we are always looking for new business opportunities in our inter-dealer business as well.

TWST: It was a full year ago that you were at your stock value low. You were $1.75 52 weeks ago. You’ve had highs of around $6.50 and you’re in the $6 range now. Can you keep it up? What’s on the agenda?

Mr. Scharf: Certainly, our goal is to keep it up and we are confident that we can do so. As noted earlier, we are in a business that is very dependent upon the vagaries of the markets. However, I believe that we have positioned ourselves to be consistent. Last year the market recognized that the company was doing well and growing, with the result that our stock price did very well. We want to maintain that momentum. If we can continue to make money quarter to quarter, even though those quarters might fluctuate, consistent profitability will keep our stock price moving in the right direction. Maxcor’s share price is still cheap when you look at us on any valuation methodology, whether a multiple to earnings, multiple to book, or a multiple to cash flow basis. If we continue to produce consistent earnings, increase our market share, and intelligently add new businesses, then we should continue to see improvements in our ratios and our stock price.

TWST: Thank you. (DWA)

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include a Corporate Profile or other highlight material to be provided and sponsored by and for the company.