=+XTRA plc was incorporated in 1978 and makes up its accounts to 31 December each year. Its main business is the hire and retail of videos, records, compact discs and com- puter games. The company had traded very profitably throughout Ireland until the late 1990s when its results deteriorated dramatically as a result of fierce competition from larger retailers based in Great Britain entering the Irish market. In reaction to the falling profit margins and share price, the directors decided to try to halt the decline through a policy of acquisition and merger. The company has negotiated debt financing of up to €5m at a fixed rate of 10% per annum with Allied North West Bank should it be required.

(a) During the second half of 2003 the directors of XTRA plc and VDO plc had discus- sions with a view to a combination of the two companies. As a result of these negotia- tions it was agreed that: