File 1 provides the "master" and the result of the merge should look like:

<?xml version="1.0"?>
<chapter>
<title>Business Ethics and Social Responsibility</title>
<section id="sec1">
<title>My Title</title>
<para id="1">Some content</para>
<para role="note" id="1">Here is a sample 1 annotation</para>
<para id="2">Some content</para>
<para role="note" id="2">Here is a sample 2 annotation</para>
<para id="3">Some content</para>
<para role="note" id="3">Here is a sample 3 annotation</para>
<para id="4">Some content</para>
<para role="note" id="4">Here is a sample 4 annotation</para>
<para id="5">Some content</para>
<para id="6">Some content</para>
<para id="7">Some content</para>
<para id="8">Some content</para>
</section>
</chapter>

<xsl:stylesheet
  xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
  version="1.0">

  <xsl:output method="xml" indent="yes"/>
  <xsl:strip-space elements="*"/>

  <xsl:template match="@* | node()">
    <xsl:copy>
      <xsl:apply-templates select="@* | node()"/>
    </xsl:copy>
  </xsl:template>

  <xsl:template match="chapter/title">
    <xsl:copy>
      <xsl:text>Business Ethics and Social Responsibility</xsl:text>
    </xsl:copy>
  </xsl:template>

  <xsl:template match="note">
    <para role="note">
      <xsl:apply-templates select="@* | node()"/>
    </para>
  </xsl:template>

	Martin Honnen
	http://msmvps.com/blogs/martin_honnen/