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the open market and a long-term pulp contract would shore up its
pulp requirements. KKO believed that the long term contract with
LRFP would be strengthened by KKO having a minority interest in
LRFP rather than creating a buyer-seller relationship.
On November 5, 1980, GNN and KKO signed a letter of intent
(the Letter of Intent) to build jointly a pulp mill. The Letter
of Intent contemplated that GNN would own 80 percent of the
venture and KKO would own 20 percent, and that GNN and KKO would
be responsible for their pro rata share of debt and equity. KKO
desired to satisfy its 20-percent share of the equity by
contributing its sawmill operations, the pulp mill site, existing
environmental permits, and Finnish machinery. The Letter of
Intent stated that GNN agreed with this proposal in principle,
subject to a mutual determination of the value of the contributed
assets. KKO proposed that GNN value the contributed assets at
$31.5 million, which KKO represented to GNN was the total amount
KKO had invested in LRFP.
When the parties contemplated the 80/20 split, they
anticipated that KKO would participate in the project for the
long run, and that KKO would be a true coventurer and equity
participant in the project. KKO would also share any risk of
loss in the project. The Letter of Intent stated that "If for
any reason the project does not proceed, expenses incurred by
either party shall be assumed by that party without reimbursement
from the other party." The Letter of Intent also assured KKO a
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