to acquire Capital Re Corporation (Cap Re) in the face of a competing offer from XL Capital Ltd.

The board of Cap Re has said it will respond to the revised ACE proposal tomorrow. If the Cap Re board rejects the latest ACE proposal, XL looks set to win the tussle.

Meanwhile, Cap Re has withdrawn its recommendation to shareholders to accept the original ACE offer.

Cap Re announced late on Friday that it had received a revised offer from ACE for a merger, under which ACE would acquire the common shares of Cap Re stock at $13 per share in a mix of ordinary shares of ACE and cash.

ACE is offering six-tenths of an ACE ordinary share, plus an amount of cash which is intended to deliver $13.00 per share to Cap Re stockholders when the deal closes, based on various ACE share prices between $13.87 per share and $21.67 per share, subject to a maximum of $150 million of cash (or approximately $4.68 per Capital Re share).

Based upon an assumed average closing price of $16 and 3/8 (ACE's closing price on October 13, 1999), for each Capital Re share, stockholders would receive six-tenths of an ACE ordinary share and $3.175 in cash per share.

The value of the ACE ordinary shares to be delivered to Cap Re stockholders would be based upon the average closing price of the ACE ordinary shares over the five-day trading period ending three business days prior to the closing date of the merger.

As in the existing merger agreement, if the average closing price equals or exceeds $36.67, the exchange ratio would be decreased so that Capital Re stockholders would receive ACE shares with a value equal to $22 To the extent that ordinary shares are received in the merger, it is intended that stockholders of Cap Re would not recognise taxable gain or loss on the exchange.

There is no financing contingency to ACE's new offer.

Meanwhile, Cap Re's board of directors, at a meeting held on Friday, formally determined to withdraw its recommendation that stockholders adopt the agreement and plan of merger with ACE, dated June 10, 1999.

On October 10, 1999, Cap Re's board had determined that the XL proposal, which offers cash of $13 per share to Capital Re stockholders, was a "superior proposal'' as defined in the original ACE agreement.

In light of that determination, the board of Cap Re on Friday resolved to withdraw its recommendation that stockholders adopt the original ACE agreement, which did not permit the Cap Re board to take this action or publicly announce an intention to do so without three business days' prior written notice to ACE, which was given on October 10, 1999.

Cap Re's Board of Directors has formed a committee of disinterested directors to consider the revised ACE offer.

ACE sweetens Cap Re offer That committee, presumably, excludes Dominic Frederico and Donald Kramer, ACE executives who were appointed to the Cap Re board on October 10.

The revised ACE offer would require a new proxy solicitation period prior to a required stockholder vote.

Under the terms of the original ACE agreement, Cap Re may not terminate the original ACE agreement and accept the XL proposal until the sixth business day following notice to ACE of its intention to accept the proposal. That notice was given to ACE on October 10, 1999. The Original ACE Agreement remains in force until terminated.

Unless the revised ACE proposal is deemed by the Cap Re board to be at least as favourable as the XL proposal, or another alternative proposal is offered, Cap Re is permitted to terminate the original ACE agreement tomorrow and may then accept the XL proposal.

The Cap Re board intends to make a determination regarding the revised ACE proposal before the close of business on Tuesday, October 19, 1999 and the XL proposal is irrevocable by its terms until that time.

THE CAPITAL RE TAKEOVER FIGHT As the battle for control of specialty insurer Capital Re Corporation heats up, here is a brief summary of events to date: March, 1998: ACE and Cap Re form a joint venture, ACE Capital Re, to write both traditional and custom-designed programmes covering financial guaranty, mortgage guaranty and a broad range of financial risks.

June 14, 1999: ACE offers to buy Cap Re for $606 million in stock, based on Cap Re's stock price, then at $22. Cap Re stockholders are to receive 0.6 ordinary shares of ACE for each share of common stock of Cap Re. Cap Re shareholders are to vote on the offer on October 7, 1999, following necessary regulatory approval.

June 15, 1999: Through its subsidiary, ACE Bermuda Insurance, ACE buys $75 million worth of Cap Re stock. It now owns 10 percent of the company. ACE also puts an additional $95 million into ACE Capital Re, the joint venture.

October 6, 1997: A day before the scheduled shareholders' meeting of Cap Re, XL Capital makes an unsolicited bid to buy the company, in an all-cash offer valued at $456 million.

October 7, 1999: ACE reiterates its interest in buying Cap Re.

October 9, 1999: XL enters into a confidentiality agreement with Cap Re relating to XL's offer.

October 10, 1999: ACE exercises its right to appoint two board members to Cap Re. ACE executives Frederic Dominico and Donald Kramer join the Cap Re board, bringing the number of directors to nine.

October 11, 1999: XL raises its offer to $13 per share and says it will pay a $25 million termination fee and set up a $50 million stand-by commitment for Cap Re if the XL bid is successful.

October 11, 1999: The Cap Re board considers XL's offer.

October 15, 1999: ACE sweetens its offer to $13 a share in cash and stock.