Reliant FORM 10-K manual Restricted cash and cash equivalents, Capital stock Common shares

Expenses related to outsourcing contracts for the years ended December 31, 2003, 2002 and 2001 amounted to $308, $364 and $498, respectively, and were for services provided to Nortel Networks primarily related to a portion of information services, payroll, capital services, accounts payable and training and human resource functions. The amount payable under Nortel Networks outsourcing contracts is variable to the extent that Nortel Networks workforce fluctuates from the baseline levels contained in the contracts. The table above shows the minimum commitment contained in the outsourcing contracts.

15. Restricted cash and cash equivalents

As of December 31, 2003 and 2002, approximately $63 and $249, respectively, of cash and cash equivalents was restricted as collateral for certain bid, performance related and other bonds as well as for certain normal course of business transactions. The cash and cash equivalents collateral was in addition to the payment of fees and was required as a result of the general economic and industry environment and NNL’s credit ratings.

16. Capital stock Common shares

Nortel Networks Corporation is authorized to issue an unlimited number of common shares without nominal or par value. The outstanding number of common shares and prepaid forward purchase contracts included in shareholders’ equity consisted of the following as of December 31:

	2003			2002			2001
	Number		$	Number		$	Number		$
(Number of common shares in thousands)
Common shares:
Balance at beginning of the year	3,844,172	$	33,234	3,208,285	$	32,245	3,102,019	$	29,141
Shares issued pursuant to:
Shareholder dividend reinvestment and stock purchase plan							484		6
Stock option plans	1,550		38	3,269		142	20,836		528
Acquisition and acquisition related(a)	(330)		(11)	(330)		(12)	75,911		2,509
Common share offering(b)	–		–	632,500		858	–		–
Conversion of subsidiary preferred shares	–		–	–		–	9,035		61
Prepaid forward purchase contracts(c)	321,322		413	448		1	–		–
Balance at end of the year	4,166,714	$	33,674	3,844,172	$	33,234	3,208,285	$	32,245
(Number of prepaid forward purchase contracts)
Prepaid forward purchase contracts:(c)
Balance at beginning of the year	28,722	$	622	–	$	–	–	$	–
Prepaid forward purchase contract offering	–		–	28,750		623	–		–
Prepaid forward purchase contracts settled	(19,029)		(413)	(28)		(1)	–		–
Balance at end of the year	9,693	$	209	28,722	$	622	–	$	–

(a)Common shares issued as part of the purchase price consideration. During the years ended December 31, 2003 and 2002, common shares were cancelled as earn out provisions were forfeited pursuant to their applicable agreements.

(b)On June 12, 2002, Nortel Networks issued 632,500 common shares for net proceeds of approximately $858, net of issue costs of $36.

(c)Concurrent with the common share offering on June 12, 2002, Nortel Networks issued 28,750 prepaid forward purchase contracts for net proceeds of $623, net of issue costs of $26, which were recorded as an element of additional paid-in capital. During the years ended December 31, 2003 and 2002, respectively, 321,322 and 448 common shares were issued as a result of the early settlement of 19,029 and 28 prepaid forward purchase contracts. The net proceeds from the settled contracts of $413 and $1, respectively, were transferred from additional paid-in capital to common shares.

During the year ended December 31, 2001, Nortel Networks Corporation issued common shares to the holders of the 200 Cumulative Redeemable Class A Preferred Shares Series 4 (“Series 4 Preferred Shares”) of NNL, each of whom had exercised their right to exchange their Series 4 Preferred Shares for common shares of Nortel Networks Corporation. The number of common shares issued for each Series 4 Preferred Share was determined by dividing Canadian $0.50 by the

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