William H. Sadlier, Inc.

and Subsidiary
Annual Report December 31, 2009

WILLIAM H. SADLIER, INC. AND SUBSIDIARY

To Our Shareholders: In 2009 net income of William H. Sadlier, Inc. was $4,030,000, an increase of $1,719,000 from 2008, although we were faced with a $1,230,000 decrease in net sales. Despite the economic problems associated with the year, for ourselves as well as our competitors, 2009 was a profitable year. In 2010 our major focus will be the launching of We Believe with Project Disciple, in addition to controlling our costs since there is still a long road ahead to stabilizing the economy. We look forward to the future as we continue to study how print and technology will coexist in the educational environment. We are pleased that the Company's Board of Directors has declared a dividend of $1.25 per share, payable on June 18, 2010 to shareholders of record as of May 17, 2010. Your continued trust and support are appreciated. Sincerely,

William Sadlier Dinger President

Frank Sadlier Dinger Chairman of the Board and Chief Operating Officer

WILLIAM H. SADLIER, INC. AND SUBSIDIARY Selected Financial Data (Dollars in thousands execept per share data) 2009 Net sales Net income Net income per share: Basic Diluted Total assets Cash dividends per share * $ 53,358 4,030 4.87 4.85 44,146 .70 2008 $ 54,588 2,311 2.79 2.76 41,185 .75 2007 $ 55,338 2,291 2.81 2.72 45,771 1.00 2006 $ 55,052 3,303 4.07 3.94 42,690 .90 2005 $ 52,488 2,663 3.29 3.20 37,845 .75

* Dividends were declared and paid during the second quarter for all years presented.

Common Stock Prices The Company's common stock is listed in Pink Sheets, LLC's "Pink Sheets." The prices below represent the high and low closing as quoted on the Pink Sheets. As of March 3, 2010, there were 96 shareholders of record.

2009 High First Quarter Second Quarter Third Quarter Fourth Quarter $ 27.45 26.00 34.00 35.00 $ Low 21.22 21.22 26.00 28.00 $ High 44.25 45.00 42.95 42.95

2008 Low $ 44.25 41.75 40.65 27.45

Independent Auditor's Report To the Shareholders and Board of Directors William H. Sadlier, Inc. New York, New York We have audited the accompanying consolidated balance sheets of William H. Sadlier, Inc. and Subsidiary (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years ended December 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William H. Sadlier, Inc. and Subsidiary as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

New York, New York March 23, 2010

McGladrey & Pullen, LLP is a member firm of RSM International an affiliation of separate and independent legal entities.

William H. Sadlier, Inc. and Subsidiary Consolidated Balance Sheets December 31, 2009 and 2008
2009 ASSETS Current Assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts and returns of $389,252 and $321,011 in 2009 and 2008 Inventories: Bound books and merchandise, net Work-in-process, net Paper, net Prepaid expenses Refundable income taxes Deferred income taxes Total current assets Fixed Assets and Software, at cost: Furniture, fixtures and equipment Software Leasehold improvements Less accumulated depreciation and amortization Total fixed assets and software Other Assets: Deferred prepublication costs, net of amortization expense Deferred writing fees, net of amortization expense Deferred income taxes Other Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable Accrued liabilities: Royalties Payroll Retirement benefits and deferred compensation Income Taxes Other Total current liabilities Deferred rent Deferred compensation Other Total liabilities Commitments Shareholders' Equity: Common shares - $.25 par value; authorized 1,200,000 shares, issued 900,000 shares Additional paid-in capital Retained earnings Less cost of 102,766 and 47,503 treasury shares in 2009 and 2008, respectively Accumulated other comprehensive loss, net of tax expense of $11,000 in 2008 Total shareholders' equity Total liabilities and shareholders' equity See Notes to Consolidated Financial Statements. $ 225,000 114,630 38,056,910 38,396,540 (2,642,838) (1,217) 35,752,485 44,145,900 $ 225,000 136,207 34,607,963 34,969,170 (1,091,982) (2,945) 33,874,243 41,185,243 $ 922,630 1,870,887 2,461,441 32,747 276,819 407,583 5,972,107 1,186,831 1,095,914 138,563 8,393,415 $ 1,410,491 1,880,945 1,841,751 54,686 116,289 5,304,162 1,139,124 867,714 7,311,000 $ $ 24,652,357 1,617,052 3,929,156 213,237 713,352 4,855,745 405,476 1,493,000 33,023,630 2,551,905 2,607,463 420,845 5,580,213 4,065,333 1,514,880 6,722,766 2,101,742 406,000 376,882 44,145,900 $ $ 18,376,040 2,676,847 4,586,435 539,607 115,054 5,241,096 415,728 210,722 1,175,000 28,095,433 2,495,114 2,189,069 420,845 5,105,028 3,431,932 1,673,096 7,794,413 3,054,131 127,000 441,170 41,185,243 2008

William H. Sadlier, Inc. and Subsidiary Consolidated Statements of Income Years Ended December 31, 2009, 2008 and 2007
2009 2008 2007

Net Sales Operating Costs and Expenses: Manufacturing, royalty and amortization Editorial and distribution Selling, general and administrative

$ 53,357,519

$ 54,588,444

$ 55,338,117

15,237,886 7,575,735 24,266,060 47,079,681

16,878,503 9,021,947 25,215,493 51,115,943 3,472,501

16,944,061 8,687,462 25,916,682 51,548,205 3,789,912

Operating profit Other Income (Expense): Interest income Other income, net Interest expense

6,277,838

202,189 172,721 (31,594) 343,316

260,027 640,929 (208,447) 692,509 4,165,010 1,854,000 $ 2,311,010 $

583,696 261,362 (534,951) 310,107 4,100,019 1,809,000 2,291,019

Income Before Income Taxes Provision for Income Taxes Net income Net Income per Common Share: Basic Diluted Average Shares Outstanding: Basic Diluted See Notes to Consolidated Financial Statements. $

6,621,154 2,591,000 4,030,154

$ $

4.87 4.85

$ $

2.79 2.76

$ $

2.81 2.72

827,505 831,213

826,988 836,648

816,521 841,230

William H. Sadlier, Inc. and Subsidiary Consolidated Statements of Shareholders' Equity Years Ended December 31, 2009, 2008 and 2007
Accumulated Other Comprehensive Income (Loss) $ 263,900 34,959 298,859 (298,859) (2,945) (2,945) 1,728 # $ (1,217) # $ $

Common Shares Balance, January 1, 2007 Net income: Unrealized gains on investment securities, net of tax of $20,011 Total comprehensive income Cash dividends, $1.00 per share 250 shares purchased for treasury 2,600 shares granted to Board members 8,250 stock options exercised Noncash compensation expense Balance, December 31, 2007 Net income: Unrealized loss on investment securities, net of tax benefit of $205,354 Foreign currency translation Total comprehensive income Cash dividends, $0.75 per share 2,500 shares granted to Board members 25,000 stock options exercised Noncash compensation expense Balance, December 31, 2008 Net income: Foreign currency translation Total comprehensive income Cash dividends, $.70 per share 59,663 shares purchased for treasury 2,400 shares granted to Board members 2,000 stock options exercised Noncash compensation expense Balance, December 31, 2009 See Notes to Consolidated Financial Statements. $ $ 225,000 225,000 225,000 225,000 $ $

Additional Paid-in Capital 100,016 20,767 18,025 5,938 144,746 16,471 (27,875) 2,865 136,207 (13,014) (10,224) 1,661 114,630 # $ $

Retained Earnings 31,440,554 2,291,019 (815,197) 32,916,376 2,311,010 (619,423) 34,607,963 4,030,154 (581,207) 38,056,910

Treasury Shares (1,963,328) (10,000) 59,678 189,525 (1,724,125) 57,458 574,685 (1,091,982) (1,658,559) 58,980 48,723 (2,642,838) # $ $

Total 30,066,142 2,291,019 34,959 2,325,978 (815,197) (10,000) 80,445 207,550 5,938 31,860,856 2,311,010 (298,859) (2,945) 2,009,206 (619,423) 73,929 546,810 2,865 33,874,243 4,030,154 1,728 4,031,882 (581,207) (1,658,559) 45,966 38,499 1,661 35,752,485

William H. Sadlier, Inc. and Subsidiary Consolidated Statements of Cash Flows Years Ended December 31, 2009, 2008 and 2007
2009 Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets Amortization of computer software costs Amortization of prepublication costs, deferred writing fees and license agreement costs Allowance for doubtful accounts Stock compensation Gain on investment securities Deferred income taxes (benefit) Deferred rent Changes in operating assets and liabilities: Decrease (increase) in accounts receivable Decrease (increase) in inventories Decrease in prepaid expenses Increase in deferred writing fees Decrease (increase) in other assets (Decrease) increase in accounts payable Increase (decrease) in accrued liabilities Increase (decrease) in deferred compensation Increase (decrease) in accrued taxes on income Total adjustments Net cash provided by operating activities Cash Flows From Investing Activities: Sales of investment securities Purchases of investment securities Capital expenditures Prepublication cost expenditures Computer software costs Net cash used in investing activities Cash Flows From Financing Activities: Dividends paid Purchase of shares for treasury Proceeds from exercise of stock options Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and Cash Equivalents: Beginning Ending Supplemental Disclosures of Cash Flow Information: Interest paid Income taxes paid See Notes to Consolidated Financial Statements. $ $ $ $ 4,030,154 206,851 426,550 3,979,183 68,241 47,627 1,728 (597,000) 47,707 991,554 385,351 10,252 (384,817) 61,148 (487,861) 1,039,489 206,261 487,541 6,489,805 10,519,959 (59,926) (1,564,055) (418,394) (2,042,375) (581,207) (1,658,560) 38,500 (2,201,267) 6,276,317 18,376,040 24,652,357 137,014 2,700,459 $ $ $ $ 2008 2,311,010 227,035 265,340 3,856,850 (350) 76,804 (417,702) 1,470,000 47,707 (155,812) 685,084 13,745 (2,195,549) 55,339 (1,023,961) (932,768) (4,495,392) 366,686 (2,156,944) 154,066 2,555,448 (89,110) (3,759,311) (650,897) (1,943,870) (619,423) 546,806 (72,617) (1,862,421) 20,238,461 18,376,040 574,405 13,625 $ $ $ $ 2007 2,291,019 237,060 145,540 3,594,745 (114,471) 86,383 (80,246) 26,186 47,707 (82,497) (563,521) 83,236 (1,219,238) (105,019) 1,697,151 (369,514) 757,334 (1,607,496) 2,533,340 4,824,359 944,266 (983,262) (150,583) (2,287,064) (285,633) (2,762,276) (815,197) (10,000) 207,550 (617,647) 1,444,436 18,794,025 20,238,461 35,373 3,382,206

William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 1. Nature of Operations and Accounting Policies

Nature of Operations: William H. Sadlier, Inc. (the "Company") publishes textbooks and related workbooks, teachers' guides and other supplementary materials principally in the subject areas of religion, mathematics, language arts and reading. The Company's major markets are in Catholic schools, parish schools of religion, and public and private elementary and high schools, primarily in the United States. Estimates Used in Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of Credit Risk: The Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses on these accounts. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary. All material intercompany transactions and balances have been eliminated. The subsidiary merged into William H. Sadlier on November 19, 2009. Accounts Receivable: Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible. Inventories: Inventories, consisting mostly of bound books, are stated at the lower of cost (first-in, first-out) or market and are net of allowances for obsolete and slow-moving goods. Depreciation and Related Policies: Depreciation of furniture, fixtures and equipment is provided by the straight-line method over the estimated useful lives of the assets which range from three to ten years. Amortization of computer software costs is provided by the straight-line method and is amortized over three to five years. Amortization of the cost of improvements to leased premises is based on the terms of the lease or the estimated useful lives of the improvements, whichever period is shorter. Expenditures for maintenance and repairs are charged to operations and expenditures for additions and improvements are capitalized. Gains or losses from asset disposals are reflected in other income. Deferred Prepublication Costs: Prepublication costs of new books and audiovisual material consist primarily of design, layout, art and photo services, composition, and film and plate preparation charges. These costs are amortized over five years, by the straight-line method, from the date of publication or the estimated remaining life, if shorter. Costs applicable to revised editions of standard texts are included in prepublication costs and costs applicable to reprints are expensed as incurred. It is the Company's policy to periodically review and evaluate whether the benefits associated with these costs are expected to be realized and whether, therefore, deferral and amortization are justified. Deferred Writing Fees: Writing fees paid to outside authors are capitalized as deferred writing fees and amortized over three years by the straight-line method from the date of publication. It is the Company's policy to periodically review and evaluate whether the benefits associated with these fees are expected to be realized and whether, therefore, deferral and amortization are justified. Pursuant to agreements with authors, certain writing fees paid to others may be deducted from royalties paid. Such fees will be transferred from deferred writing fees and included in other assets as advances until they are deducted. They will not be amortized.

William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 1. Nature of Operations and Accounting Policies (Continued)

Revenue Recognition: Sales of textbooks and related workbooks, teachers' guides and other supplementary materials, less provisions for returns, are recorded at the time of shipment when title and risk of loss are transferred and persuasive evidence of an arrangement exists. In order to recognize revenue, the Company must not have any continuing obligations and it also must be probable that the Company will collect the accounts receivable. Shipping costs are included in manufacturing, royalty and amortization costs. Stock-Based Compensation: The Company adopted the fair value recognition provisions of Accounting Standards Codification ("ASC") Topic 718, Compensation-Stock Compensation ("Topic 718"), using the modified prospective transition method. Under this transition method, stock-based compensation expense in 2006 included compensation expense for all share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of Topic 718. It also includes stock-based compensation expense for all share-based payment awards granted after December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of Topic 718. Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Income per Common Share: Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted income per share is computed by dividing net income by the weighted-average number of common shares outstanding and the dilutive effects of options. The following table reflects the calculation of basic and diluted earnings per share:

2009 Earnings per share - basic: Earnings available to common shareholders Weighted-average shares outstanding Earnings per share - basic Earnings per share - diluted: Earnings available to common shareholders Weighted-average shares outstanding Dilutive impact of options outstanding Weighted-average shares and potential dilutive shares outstanding Earnings per share - diluted $ $ $ 4,030,154 827,505 4.87 4,030,154 827,505 3,708 831,213 4.85 $ $ $

2008 2,311,010 826,988 2.79 2,311,010 826,988 9,660 836,648 2.76 $ $ $

2007 2,291,019 816,521 2.81 2,291,019 816,521 24,709 841,230 2.72

Advertising: Costs incurred for producing and communicating advertising are expensed as incurred and included in selling, general and administrative expenses in the accompanying consolidated statements of income. Advertising expenses approximated $697,000, $771,000, and $1,522,000 for the years ended December 31, 2009, 2008 and 2007, respectively. 9

William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 1. Nature of Operations and Accounting Policies (Continued)

Recent Accounting Pronouncements: Effective January 1, 2009, the Company adopted the provisions of ASC Topic 740, Accounting for Uncertainty in Income Taxes ("Topic 740"), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the position is sustainable based on its technical merit. Upon the adoption of Topic 740, the Company had no unrecognized tax benefits. The application of Topic 740 did not have any impact on the Company's consolidated balance sheet, consolidated statement of income or consolidated statement of cash flows for the year ended December 31, 2009. The Company is no longer subject to income tax examinations by U.S. federal, state or local tax authorities for the years 2004 and before. In May 2009, the Financial Accounting Standards Board (the "FASB") issued ASC Topic 855, Subsequent Events ("Topic 855"), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Topic 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rational as to why the date was selected. Topic 855 is effective for interim and annual periods ended after June 15, 2009. The Company has adopted the provisions of Topic 855. The Company has evaluated subsequent events through the date these financial statements were available to be issued, March 23, 2010. Note 2. Short-Term Borrowings and Compensating Balance Arrangements

At December 31, 2009, the Company had unsecured lines of credit from banks totaling $15,000,000, which are available for loans. The lines are subject to review annually. One of the arrangements restricts the use of such balances for general corporate purposes, limits the amount of other debt and requires that shareholders' equity be at least $22,500,000, and working capital be at least $7,500,000 at December 31, 2009. No amounts were outstanding under these lines at December 31, 2009 or 2008.

10

William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 3. Income Taxes

Income tax expense (benefit) consists of:

Current Year ended December 31, 2009: Federal State and local Deferred Total

2,546,000 642,000 3,188,000

(477,000) (120,000) (597,000)

2,069,000 522,000 2,591,000

$ Year ended December 31, 2008: Federal State and local

271,000 113,000 384,000

1,037,000 433,000 1,470,000

1,308,000 546,000 1,854,000

$ Year ended December 31, 2007: Federal State and local

1,804,000 485,000 2,289,000

(378,000) (102,000) (480,000)

1,426,000 383,000 1,809,000

A reconciliation of the federal statutory tax rate with the effective rate is as follows as of December 31:
2009 Federal statutory rate Increase (decrease) resulting from: State and local income tax expense, net of federal tax effect Nondeductible expenses Other 1.6 Effective rate 34.0 % 2008 34.0 % 2007 34.0 %

5.3 0.8 (1.0) 39.1 %

8.3 1.7 0.6 44.6 %

5.9 1.8 2.4 44.1 %

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William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 3. Income Taxes (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2009 and 2008 are presented below:
2009 Net current deferred tax assets: Accounts receivable allowances Inventory allowances and tax costing adjustments Prepaid expenses Retirement agreement costs Net current deferred tax assets Net noncurrent deferred tax assets: Retirement agreement costs Fixed assets, due to differences in depreciation Deferred rent Net noncurrent deferred tax assets 2008

84,000 1,558,000 (149,000) 1,493,000

61,000 1,228,000 (155,000) 41,000 1,175,000

443,000 (502,000) 465,000 406,000

386,000 (736,000) 477,000 127,000

Management has determined that a valuation allowance for deferred tax assets is not required as of December 31, 2009 and 2008. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Note 4. Retirement Plans

Substantially all of the Company's employees are eligible to participate in its 401(k) plan. The plan provides for a matching contribution of 50% of employee contributions limited to 3% of salaries. In addition, each year, the Company's Board of Directors (the "Board") determines the amount of any additional contribution based upon the Company's profitability. Expenses under the 401(k) plan for the years ended December 31, 2009, 2008 and 2007 were $360,000, $324,000 and $377,000, respectively. The Company has entered into supplemental retirement agreements with certain key employees calling for periodic payments to be made when the employees reach age 65. The Company has purchased life insurance policies in conjunction with these obligations. At December 31, 2009 and 2008, the value of these policies included in other assets was $251,000 and $270,000, respectively. In 2009, 2008 and 2007, there were (decreases) increases related to these agreements of $(22,000), $11,200 and $12,900, respectively.

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William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 5. Employee Compensation

The Company maintains a deferred compensation program, which permits key employees to elect annually to defer a portion of their compensation, on a pretax basis. The deferred compensation earns a specified rate of interest and is payable upon the employee's death, retirement or other termination of employment or a determination of hardship. The Company may invest amounts equal to the deferrals in accounts, which are recorded as assets of the Company. The investments are valued at market and any accumulated loss or gain is shown as a component of shareholders' equity. The Company's liability under this deferred compensation program as of December 31, 2009 and 2008 amounted to approximately $1,096,000 and $868,000, respectively. In 2009, 2008 and 2007, approximately $200,000 was deferred in each of these years in accordance with this program. In March 2008, approximately $4,825,000 of deferred compensation was paid to the key employees. In 2009, 2008 and 2007, the Board approved a bonus pool for employees, including executives. The amount of the bonus pool, $2,373,000 in 2009, $1,363,000 in 2008, and $1,784,000 in 2007, was based upon a percentage of profits up to a specified level with the allocation of the bonus being determined at the discretion of senior management. Note 6. Common Stock

In 1998, the Board approved the issuance of 100 shares, per meeting, of the Company's common stock to each member of the Board. Pursuant to this authorization, 2,400 treasury shares were issued in 2009 with 2,500 treasury shares issued in 2008 and 2,600 treasury shares issued in 2007 at fair market value as of the date of issuance. This resulted in a compensation expense of $45,966, $73,929 and $80,445 in 2009, 2008 and 2007, respectively. Note 7. Stock Option Plans

The William H. Sadlier, Inc. 1998 Stock Option Plan (the "1998 Plan") allowed grants through June 25, 2003 and provided for the award of up to 100,000 shares of the Company's common stock. Under the 1998 Plan, incentive stock options were granted at an exercise price equal to the market price of the Company's stock on the date of grant with a maximum term of 10 years. These options generally vest ratably in equal installments extending through the fifth year after grant. In June 2003, the Company's shareholders voted in favor of the approval and adoption of the William H. Sadlier, Inc. 2003 Incentive Stock Plan (the "2003 Plan"). The purpose of the 2003 Plan is to promote the interests of the Company and its shareholders by (i) attracting and retaining key employees and non-employee directors to the Company; (ii) motivating such employees by means of performance-related incentives to achieve longer-range performance goals; and (iii) enabling such employees to participate in the long-term growth and financial success of the Company. The 2003 Plan provides for awards of up to 200,000 shares of the Company's stock and may be in the form of stock options, stock appreciation rights, restricted stock or other stock-based awards. Under the 2003 Plan, incentive stock options may be granted at an exercise price equal to the market price of the Company's stock on the date of grant with a maximum term of 10 years. The vesting provisions of these options shall be established at the discretion of the Board at the time of grant. The total compensation expense before taxes related to these plans was $1,661, $2,865 and $5,938 in 2009, 2008 and 2007, respectively.

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William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 7. Stock Option Plans (Continued)

Stock option activity during the periods indicated is as follows:

Options Outstanding, January 1, 2007 Exercised Canceled Outstanding, December 31, 2007 Exercised Canceled Expired Outstanding, December 31, 2008 Exercised Canceled Expired Outstanding, December 31, 2009 Vested and exercisable, December 31, 2009 Options available for grant, December 31, 2009 72,500 (8,250) (6,000) 58,250 (25,000) (6,000) (1,250) 26,000 (2,000) (5,000) (4,000) 15,000 10,500 196,000 $ $ $

Weighted-Average Remaining Exercise Contractual Price Term 23.83 25.16 24.67 23.55 21.87 24.67 19.00 25.13 19.25 25.75 24.95 25.75 25.68 2.5 2.2

Aggregate Intrinsic Value

$ $

35,190 25,455

No stock options were granted in any of the years 2009, 2008 or 2007. The total intrinsic value of options exercised during the years ended 2009, 2008 and 2007 was $14,000, $170,000, and $154,000, respectively. A summary of the Company's nonvested shares as of December 31, 2009 and changes during the year ended December 31, 2009 is presented below:
Weighted-Average Grant Date Fair Value $ 8.16 9.00 8.07 8.07

Nonvested Shares Nonvested at Janaury 1, 2009 Vested Cancelled Nonvested at December 31, 2009

Shares 8,400 (2,400) (1,500) 4,500

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William H. Sadlier, Inc. and Subsidiary Notes to Consolidated Financial Statements Note 7. Stock Option Plans (Continued)

As of December 31, 2009, there was $3,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average period of 1.9 years. The fair value of shares vested during the years ended December 31, 2009, 2008 and 2007 was $22,000, $21,000 and $56,000, respectively. Note 8. Commitments

Lease Agreements: The Company has noncancelable operating lease agreements for office space in New York and Iowa, and warehouse space in New Jersey. The New York office lease contains provisions for future rent increases and rent-free periods. The total amount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is recorded as deferred rent on the consolidated balance sheets. Rental expense for the years ended December 31, 2009, 2008 and 2007 was approximately $1,947,000, $1,897,000 and $1,786,000, respectively. At December 31, 2009, future minimum payments under these noncancelable operating leases for office and warehouse space are as follows:
Year Ending December 31, 2010 2011 2012 2013 2014 Thereafter through 2020 Total minimum lease payments $ 1,971,000 1,575,000 1,563,000 1,590,000 1,618,000 9,845,000

$ 18,162,000

At December 31, 2009, future minimum rental payments under noncancelable operating leases for equipment are as follows:

Year Ending December 31, 2010 2011 2012 2013 2014 Total minimum lease payments $ 495,000 377,000 248,000 238,000 205,000 1,563,000

Letter of Credit: The Company was committed under a letter of credit by a bank on its behalf of approximately $339,000.

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William H. Sadlier, Inc. and Subsidiary

Directors Corporate Offices: 9 Pine Street New York, NY 10005-1002 Registrar and Transfer Agent: American Stock Transfer & Trust Company Auditors: McGladrey & Pullen, LLP General Counsel: Satterlee Stephens Burke & Burke LLP The Annual Meeting: The Annual Meeting of Shareholders will be held at the offices of: William H. Sadlier, Inc. 9 Pine Street, 6th Floor New York, NY 10005 June 17, 2010 Frank Sadlier Dinger Chairman of the Board and Chief Operating Officer William H. Sadlier, Inc. William Sadlier Dinger President William H. Sadlier, Inc. Michael J. Gibbons Former Managing Director Morgan Guaranty Trust Company Maurice H. Hartigan II Limited Partner Gartner Capital Advisors Arthur McCauley, Jr. Chairman of the Board, President and Chief Executive Officer Norwalk Compressor Company William H. McKenna III Principal Scientist, Pharmaceutical Development Purdue Pharma L.P. Rev. Donald Senior, CP, STL, STD President Catholic Theological Union Chicago

Officers Frank Sadlier Dinger Chairman of the Board and Chief Operating Officer William Sadlier Dinger President John Bonenberger Vice President Rosemary K. Calicchio Vice President Lawrence R. Danziger Treasurer Angela B. Dinger Secretary Carole M. Eipers Vice President Deborah J. Jones Vice President Kevin O'Donnell Vice President Robert A. Richards Vice President Carole Uettwiller Vice President

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