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{COPY) Oreaha « November 1, 1958 704-56 Mr. A. £, Stoddards <00 * Mr. W. H. House Mr. W. H. Hulsissr) This refers to your telegram S-S81 of October g, 1958 about the proposed reorganization of LVL&W Go, With respeot to recommendations on page 3 of Mr. Bennett's letter of September 30, 1958 to Mr. Reinhardt, my comments follow. Item 1. If it is decided that LVL&W Go, should acquire the water production facilities of LA&SL8R Co.* it appears that the property should first be conveyed to UPRRCo., and the latter then sell them to LVL&W Go, as provided for in Section 7 of the lease dated January 1, 1936, the applicable portion of which is quoted below for ready references " * * * * In case the Iiessee shall desire to sell any portion of the demised premises under the foregoing authority, the property shall first be sold and conveyed by the Lessor to the Lessee in consideration of an amount, to be credited to the Lessen1 equal to the eost or other basis, provided by Federal income tax law then applicable, for determining gain or loss for the purpose of computing taxable income, and the Lessee shall then sell such property for its own account, c # # « n Mr. Bennett suggests this transfer of property be made at book value. However, due to the quotation above, this transfer can be made at book value only in case suoh value was less, or no more, than the March 1, 1913 value of such of the property that was acquired prior thereto, and is presently in existence, fhis provision would no doubt a$»ly at least to all or aome portion of the land. Item 2. If the water production facilities are sold as rooemmendod, the granting of a license or lease to LVLAW Co. V for pipe line and power line rights of way aeross the LA&3LRR Go. retained lands, appears to bo in order. Item 3. If LVLSeW Go. should immediately start serving the Industrie# now served by LA&SLRR Go., it would appear that the latter would have to lease, or sell to the former, the present service lines and possibly the water mains leading thereto, or the former to construct such facilities. This might