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I'd put it away as it is with his flag if it were me, your looking at alot of work to bring that knife back to it's original shape.
The hilt (finger guard) is bent back and would need to be straightened out and there's a risk of it snapping at the point where it's bent, the blade itself is too pitted to bring back a nice smooth finish so you'd have to grind off at least a 32nd of an inch to smooth it out the right way and the blade itself would need to reshaped because it looks like it has seen a sharpening stone quite a few times towards the rear, and the leather being as dry as it is because of age would basically dissolve in any prolonged time in water.
Great thought and idea but put it where it should go, with his flag.
Just my .02
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