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J. L. S. -2-

also more than probable that they will avail of their option on the re-
mainder of the consolidated bonds. In that event, the Pacific Improve-
ment Company would receive, in all, something over $1,000,000 in excess
of the loan which matures in August. You will observe that the amounts
which they agree to take "firm," that is to say, the amounts which they
will buy and pay for in cash, if their foreign houses approve of this
proposition, will yield only a part of what is due them on the large
loan, and must be applied on that loan. In other words, it will not
give us any available funds at the outset. On the other hand, it will
be the commencement of sales of our securities - and a commencement, as
you know, is very desirable. If business conditions improve, as seems now
almost certain, there can be little doubt that this sale will be fol-
lowed by the sale of S. P. of Cal. 5's, or other securities, which will
much improve the condition of the Pacific Improvement Company and give it
more available funds. In addition to this, the contract now proposed will
eventually release securities other than the M. I. bonds, which were pledg-
ed in connection with the contract of last August. It will also end the
option embraced in that contract, and the possibility of sale of M. I. stock,
which, in consequence of necessities which then existed, was put at a
risk that it is very desirable to end. There can be no doubt that it
is for the interest of the Pacific Improvement Company and all the as-
sociates to close the contract now proposed, and prepare the new M. I.
bonds for sale with the least possible delay. The Pacific Improvement
Company should make a fair exchange with all the associates of some of
the securities which it has on hand, in return for the surrender of their
M. I. bonds.

In my despatch, I mentioned A. & N. W., G. H. & S. A. and Aran-
sas Pass bonds as available for exchange. The two classes first mentioned