Scottish Re Group Ltd. says its hybrid capital units will not work the way it had hoped 3 years ago.

Scottish Re, Hamilton, Bermuda, a struggling life reinsurer, says it will not be able to meet the conditions necessary to remarket convertible preferred shares associated with its 5.875% hybrid capital units.

The conditions were set out in a purchase contract agreement that Scottish Re negotiated with a New York bank in December 2003.

The company issued a notice about the remarketing problem 2 weeks ago.

HyCU holders are supposed to notify Scottish Re of a desire to settle the purchase contract in cash by today, Scottish Re says.

Holders can deliver the cash payments needed to settle the purchase contracts Wednesday, the company says.

The last day for holders of convertible preferred shares to give notice of conversion is May 18, and the mandatory redemption date for convertible preferred shares is May 21, Scottish Re says.

“In the case of HyCU Holders who elect not to settle in cash, the company will, in accordance with applicable law and as contemplated by the purchase contract agreement, exercise its rights as secured party to foreclose on its security interest in the convertible preferred shares in satisfaction of such holder’s obligation to purchase ordinary shares under the purchase contract agreement, and will deliver to such holders ordinary shares pursuant to the purchase contract agreement,” Scottish Re says.

In related news, Scottish Re says Institutional Shareholder Services Inc., Rockville, Md., and Glass Lewis & Company L.L.C., San Francisco, shareholder advisory services, have recommended that shareholders vote for a $600 million financing deal negotiated with units of Massachusetts Mutual Life Insurance Company, Springfield, Mass., and a group of affiliates of Cerberus Capital Management, L.P., New York.

Some institutional shareholders and other investors have complained that the deal is unfair to existing shareholders. Scottish Re says the alternative is a bankruptcy filing that would be even worse for shareholders.