Document:

Exhibit 10.18

                           PRINTING SERVICES AGREEMENT
                           ---------------------------

THIS  PRINTING  SERVICES   AGREEMENT,   made  as  of  November  29,  1999  (this
"Agreement"),  between:  ARTECH  CAPITAL  CORPORATION,  a  Canadian  corporation
("Printer"),  and GOLDEN BOOKS PUBLISHING COMPANY,  INC., a Delaware corporation
("Customer").

WHEREAS,  Printer has signed an Asset  Purchase  Agreement  with  Customer  (the
"Asset Purchase Agreement") regarding that certain  manufacturing  facility (the
"Sturtevant  Facility")  currently  leased by Customer  located at 10101 Science
Drive, Sturtevant,  Wisconsin, pursuant to which Customer is seeking to transfer
and sell to Printer its right,  title and interest in certain printing equipment
located at the  Sturtevant  Facility and the lease  pertaining to such facility,
and  Printer  is  seeking  to assume  such  lease and  purchase  such  equipment
(collectively, the "Transaction"); and

WHEREAS  Customer is a preferred  client of Printer and enjoys the privileges of
such status;

WHEREAS,  the Customer  intends to purchase  from  Printer,  and Printer has the
capacity and intends to  manufacture  assorted  printed books in the formats set
forth on Schedule A ("Product") hereto for Customer, subject to the terms hereof
and subject to the closing of the Transaction;

WHEREAS, the Customer intends to purchase from Printer, and Printer intends on a
right of first refusal  basis to seek to  manufacture  the currently  outsourced
products  set forth in Schedules  D-1 and D-2 hereto  which it, its  affiliates,
associated companies (in which it holds a material interest) or the Harpel Group
(in which it holds  indebtedness)  (all of which,  in  reference  to  Outsourced
Product or Additional Product (as hereinafter defined) may simply be referred to
as "Printer")  have the internal  capability of  manufacturing  (as  hereinafter
defined) for Customer, pursuant to the terms and conditions contained herein;

NOW,  THEREFORE,   in  consideration  of  the  covenants  and  mutual  agreement
hereinafter set forth, the parties hereto agree as follows:

                   1. ARTICLE I: GENERAL TERMS AND PROVISIONS
                      ---------------------------------------

1.1   GENERAL.
      -------

      1.1.1    PRODUCT   REQUIREMENTS.   Upon  the  terms  and  subject  to  the
               conditions  of this  Agreement,  Printer shall produce and supply
               Customer with,  and Customer shall purchase from Printer,  (i) no
               less than * of Customer's total  requirements for Product for the
               first year of the term of this Agreement,

     * Confidential treatment requested

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               (ii) no less than * of  Customer's  requirements  for Product for
               the second year of the term of this Agreement,  and (iii) no less
               than * of  Customer's  requirements  for  Product for each of the
               third,  fourth and fifth  years of this  Agreement,  in all cases
               based on aggregate  ordered annual unit volume across all formats
               of Product for the current year of the Agreement. Notwithstanding
               the previous  sentence,  Printer  agrees that it will produce and
               supply Customer with all of Customer's requirements for Products,
               regardless  of  whether  such   requirements   exceed  percentage
               requirements   specified  in  1.1.1(ii)  and  1.1.1(iii)   above,
               provided however,  that Customer,  in requesting work to be done,
               schedules  work  on  a  basis  reasonably  consistent  with  past
               practice  or  its  forecast(s)  as  provided   pursuant  to  this
               Agreement,  bearing in mind the needs of the Customer's  business
               and its  customers,  on the one  hand,  and the  capacity  of the
               Printer to supply  product and the  availability  and capacity of
               required  subcontractors,  on the other  hand.  Product  shall be
               manufactured  in accordance  with the  Production  Guidelines and
               Production  Schedule (as defined in Section 1.4(A)  hereof),  and
               Customer shall pay Printer a price  calculated in accordance with
               Section  1.5  hereof  for  all  Product  and  Outsourced  Product
               delivered  in  accordance   with  Section  1.3  hereof.   Nothing
               contained in this Agreement  shall obligate  Customer to purchase
               any  quantity of Product or  Outsourced  Product  until  Customer
               issues  specific  purchase  orders for such Product or Outsourced
               Product  in   accordance   with  the  terms  of  the   Agreement.
               Notwithstanding  the foregoing  sentence,  Printer shall purchase
               supplies only based on Customer's orders or instructions or based
               on Customer's historical production volume levels for Schedules A
               and D.  Historical  production  volume levels shall mean, for the
               calendar year 2000, Schedules A and D for calendar year 1999, and
               for  subsequent  years,  Schedules  A and D during  the  previous
               calendar year. In all cases,  historical  production levels shall
               be adjusted for  seasonality for the previous two calendar years.
               Printer  agrees  to put  in  place  stocking  programs  with  its
               suppliers generally  equivalent to the stocking programs operated
               by Customer prior to the Transaction for the basic types of paper
               and other  consumables  required to produce the  Products per the
               specifications  in Schedules B and D. It is  understood  that the
               lead times listed in Schedules B and D are  predicated  upon such
               programs  and  normal  stocking  levels of paper and  consumables
               based  on  Customer's  historical  production  volume  levels  as
               described above.  Customer may from time to time instruct Printer
               to  purchase  additional  paper  and  other  consumables  to meet
               unusual demand.  Printer may invoice Customer for the cost of any
               such additional  supplies if such supplies are not used within 90
               days of their purchase.  Subsequent to any such invoice,  Printer
               shall, upon Customer's  instructions on its purchase orders,  use
               such supplies for specific  future  orders,  with the cost of the
               supplies utilized applied against the cost of such future orders.
               Upon  payment  of  Printer's  invoice  for such  supplies,  title
               thereto shall pass to Customer. Printer shall store such supplies
               for Customer on terms consistent with terms for Customer supplied
               materials in accordance with

     * Confidential treatment requested

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               Paragraph 2.3.  Notwithstanding  anything to the contrary in this
               paragraph,  if Printer is not  billed by its paper  supplier  for
               paper  ordered  by Printer on  Customer's  instructions,  Printer
               shall not bill Customer for such paper.

               However,  in the event that either (1) unusual items are required
               (e.g.,  customized  paint boxes) or (2) the volume of  Customer's
               orders are in excess of Customer's  historical  production volume
               levels  for  that  time  of  year;  and  Customer  has  not  with
               sufficient  notice  instructed  Printer to purchase  such unusual
               items or additional paper and supplies in advance,  then the lead
               times in Schedule B or D shall automatically be extended to allow
               for the purchase of such unusual  items or  additional  paper and
               supplies. In such event, Printer will use commercially reasonable
               best efforts to obtain the  supplies  required for such order and
               will inform  Customer  within 48 hours of its ability to meet the
               lead times in Schedule B or D.  Should  Printer  inform  Customer
               that  under  such  circumstances  Printer  can not  meet the lead
               times,  then:  (a)  Customer  shall  have the right to place that
               portion of the order which can not be met with  another  printer,
               (b)  Printer's  failure  to  produce  such  product  shall not be
               included  in the  calculation  of a  possible  default by Printer
               pursuant  to  Section  8.1(c),  and  (c)  Customer's  failure  to
               purchase  such product from Printer shall not be deemed a failure
               to  provide  the  minimum  percentage  requirements  set forth in
               Section 1.1.1.

      1.1.2    OUTSOURCED PRODUCT.  Schedule D lists all of Customer's currently
               outsourced  product   (excluding   novelty  items)   ("Outsourced
               Product").  Schedule D-1  reflects  those  formats of  Outsourced
               Product  which Printer  currently has the internal  capability to
               manufacture.  For purposes of this Agreement, the words "internal
               capability  to  manufacture"  mean  that  Printer  or  any of its
               affiliated  companies  is able to perform  in-house a  sufficient
               percentage of the entire  manufacturing  process for a particular
               format  such  that  it  can  reasonably   guarantee  meeting  the
               standards of quality and scheduling for such format. Schedule D-2
               reflects  those formats of Outsourced  Product which Printer does
               not currently have internal capability to manufacture,  but as to
               which Printer intends to install or otherwise obtain the internal
               capability  to  manufacture  within  twenty  four  months  of the
               Effective Date. Schedule D-3 reflects those formats of Outsourced
               Product which Printer or its  affiliates do not have or currently
               intend to have the internal  capability to manufacture during the
               first two years of this Agreement.  Printer agrees to manufacture
               all Outsourced  Product  formats set forth in Schedule D-1 hereto
               at the  pricing set forth in  Schedule  D-1  (subject to quantity
               variation  and  variations in paper and other prices as set forth
               in Section 1.5), provided however,  that Customer,  in requesting
               work to be done, schedules work on a basis reasonably  consistent
               with past  practice or its  forecast(s)  as provided  pursuant to
               this  Agreement,  bearing  in mind the  needs  of the  Customer's
               business and its customers,  on the one hand, and the capacity of
               the Printer to supply product and the  availability  and capacity
               of required subcontractors,  on the other hand. *

     * Confidential treatment requested

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      1.1.3    ADDITIONAL  PRODUCT.  *

     * Confidential treatment requested

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1.2  ANNUAL MINIMUM VOLUME REQUIREMENT. The parties acknowledge that the initial
     aggregate  annual  minimum  volume  requirement  for  orders  for  items on
     Schedule A (including  prepress  for such  Schedule A items as described in
     Schedule F, which Customer hereby commits to utilize Printer to perform) is
     * during the first year, and adjusted for  subsequent  years as illustrated
     in the next paragraph.

     Customer's  obligations pursuant to Sections 1.1 and 1.2 are subject to the
     termination provisions of Section 8.1 as well as Customer's rights pursuant
     to Section 1.5(b) to remove from the scope of this  Agreement  formats with
     respect  to  which  Printer  is  unable  to  provide  competitive  pricing.
     Shortfalls  resulting  from  Customer  exercising  its rights  pursuant  to
     Section  1.5(b)  will not  constitute  a breach of  Sections  1.1 or 1.2 by
     Customer,  and such unit volume will not be carried over to the  subsequent
     year's  requirements,  as set forth in Section  1.5(b).  The minimum volume
     requirement for determining  any potential  shortfall in Customer's  orders
     for  Product  on  Schedule  A to  Printer  shall  be * in year  one of this
     Agreement,  * in year two, * in year three,  * in year four,  and * in year
     five. The minimum volume  requirement for determining any premium or excess
     amount in  Customer's  orders for  Product on Schedule A shall be * in year
     one of the Agreement, * in year two, * in year three, * in year four, and *
     in year five.

      1.2.1    TERM. This Agreement shall begin on the date set forth above (the
               "Effective  Date") and expire on December  31,  2004,  subject to
               earlier  termination  pursuant to the terms hereof.  In the event
               Customer desires to renew the term of this Agreement, Printer and
               Customer agree to commence good-faith  negotiations to renew this
               Agreement, and to conclude such an agreement by or before the end
               of the third year of the initial term hereof.  * It is understood
               and agreed that any and all  references to the first year of this
               Agreement  actually include the period of time from the Effective
               Date through  December 31, 2000,  even though such period of time
               comprises more than one year.

     * Confidential treatment requested

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1.3  DELIVERY.  Finished  product shall be delivered FOB the Printer's  shipping
     dock at the Sturtevant Facility. Shipment must be made to meet the required
     lead  times  in  accordance  with  Schedule  B or  Schedule  D  hereto  (if
     applicable)  or as mutually  agreed upon by Customer and Printer at time of
     purchase   order.   Notwithstanding   the   foregoing,   Printer  shall  be
     automatically  entitled to a 24-hour  extension from any required  delivery
     date, except in the case of rush orders. Upon the expiration of the 24-hour
     extension,  where applicable,  a penalty discount equal to 0.5% per day for
     the first  two days  late,  and 1% per day late  after two days and up to 5
     days late shall be applied to each late  order.  Subject to the  foregoing,
     Customer,  without  waiving any other legal  rights,  reserves the right to
     cancel  without  charge or to postpone  deliveries of any product  produced
     pursuant to the Agreement that is not received within seven (7) days of the
     required  delivery date for non rush orders and within five (5) days of the
     required  delivery  date for rush  orders,  or, for either rush or non rush
     orders,  to take an additional  discount of 1% for each  additional week of
     late delivery.  In the event of such  cancellation  or  postponement,  such
     product unit volume  shall be deemed a credit  against  Customer's  minimum
     Product  requirements  as provided in Sections 1.1 and 1.2  (calculated  in
     U.S. dollars based on the applicable  pricing  schedule).  Unless otherwise
     specified by Customer,  a partial delivery of not less than 50% of an order
     will be  considered  delivered on time as long as 90% of the order shall be
     delivered  within the next 24 hour period from the  scheduled and agreed to
     delivery date and the remaining 10% is delivered  within the  subsequent 24
     hour  period.  Except  as  expressly  contemplated  herein,  time is of the
     essence.

1.4  SPECIFICATIONS; PRODUCTION GUIDELINES AND PRODUCTION SCHEDULE. SCHEDULING.
     -------------------------------------------------------------------------

      (a)      The current standard specifications ("Production Guidelines") and
               lead times  ("Production  Schedule")  for the  manufacture of (i)
               Product are set forth in Schedule B and (ii)  Outsourced  Product
               are set forth in Schedule D. Customer reserves the right to alter
               product  specifications  at any  time  during  the  term  of this
               Agreement.  "Lead time" is defined as the time from the later of:
               (a) the date of the Customer  order (in the cases of  re-prints),
               (b) and/or the date of  acceptance  of the digital  file or final
               film proofs (on new or revised titles orders),  (c) the date that
               any  customer-supplied  materials have been delivered to Printer,
               or (d)  the  date  that  final  author's  alterations  have  been
               delivered  to  Printer,  to  the  date  that  the  product  is at
               dockside.

      (b)      Additional packaging and shipping  instructions will be indicated
               on individual purchase orders.

      (c)      Orders of product  hereunder  shall be by  purchase  order  only.
               Printer shall apply its best efforts to provide Customer,  at the
               same price as for standard lead time deliveries, up to 20% of its
               product print runs during each year of the term of this Agreement
               on an expedited  basis of no more than 50% of the  standard  lead
               time days for that  format as defined in  Schedules  B and D. The
               Customer understands that the request for "Rush" orders may

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               require  the  extension  of  delivery  time on  non-rush  orders.
               Extensions  may only be requested by the Printer in writing,  and
               such requests for extensions  shall be deemed to be accepted only
               upon receipt of Customer's permission in writing.

      (d)      In the event  Customer  cancels an order within 36 hours of press
               time,  Printer may invoice  Customer  for all out of pocket costs
               incurred by Printer  associated  with this order  (which shall be
               credited  against  a  re-order  if  applicable)  and the  cost of
               unutilized  Press  and  Bindery  time.  Printer  shall  take  all
               reasonable  efforts to obtain alternative uses for such Press and
               Bindery time.

      (e)      An order which is  partially  completed  and  cancelled or put on
               hold at the request of the  Customer  may be  invoiced  within 30
               days for work actually  performed by Printer with respect to such
               order.

1.5  PRICE; PRICE ADJUSTMENTS.
     ------------------------

      (a)      MANUFACTURING PRICES.

               Manufacturing prices for Product are listed in Schedule A hereto.
               Manufacturing   prices  for  Outsourced  Product  are  listed  in
               Schedule D hereto.  Unit prices for different  quantities will be
               subject to change using the make ready and run on costs listed in
               Schedules  A and D hereto.  Manufacturing  prices  for any format
               similar to those described in Schedules A or D hereto  (including
               without  limitation  formats  listed in Schedules A or D to which
               minor  alterations  and  adjustments  have been  made)  ("Similar
               Products") and changes to the gang quantity for formats listed in
               Schedules  A and D shall be  negotiated  by the  parties  in good
               faith, based upon the pricing contained in such Schedules for the
               format most  similar to the new  format.  Such  Similar  Products
               shall then be  included  in  Schedule A or D, as the case may be.
               Manufacturing  pricing  includes paper and all materials,  plates
               (conventional or CTP), make-readies and run cost for printing and
               binding,  and, with regard to Product,  packaging as described in
               Schedule A. Customer  shall have the right to require  Printer to
               package  any  purchase  order  quantity  in  any  combination  of
               minipack,  brick  pile  and  cartoned  at  no  additional  charge
               (providing that all materials used by the printer are of standard
               brown  kraft  paper and brown  corrugated  single wall boxes with
               printed  logo) Double  walled boxes and/or  specialty  paper wrap
               shall be  charged  at the cost of  material  plus  set-up  or die
               charges.  If  Customer  requests  Printer  to  provide  packaging
               services   materially   different  from  those  provided  for  in
               Schedules  A and  D,  and  such  services  need  to be  performed
               manually,  a charge of  US$18.50  per man hour will be applied to
               each such order. The following pricing will apply, subject to the
               provisions of subsection 1.5(b).

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      1.5.1    PREPARATION:
               -----------

      o        Prepress will be charged as set forth on Schedule F.

      o        Final  plate-ready  film  output  will be charged at *  per
               color per page based on customer supplied application files.

      o        Film mounting will be charged at * per color per page.

      o        Computer  to  Plate  file  processing  (preflight,   ripping  and
               trapping) will be charged at * per color per page.

      1.5.2    FULFILLMENT PRICES:
               ------------------

      STICKERING:

      Product  stickering will be provided on a job by job basis as requested on
      the  individual  purchase  order.  Customer  will be  charged  * per  unit
      inclusive of materials for in-line stickering and * per unit for any other
      stickering.

      1.5.3    ASSORTMENT PACKING & SHRINK-WRAPPING:
               ------------------------------------

      Pricing for any assortment packaging or shrink-wrapping  requirements will
      be agreed upon at time of purchase order issuance.

      1.5.4    CUSTOMER PICKUP:
               ---------------

      Product  and  Outsourced  Product will be packed  and staged for pickup by
      Customer's client per Customer's  shipping  instructions  at no additional
      charge.

      (b)      *

     * Confidential treatment requested

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      (c)      *

      (d)      *

      (e)      IMPROVEMENTS. If, during the term of this Agreement, improvements
               are  made in the  method  of  producing  any of the  work  herein
               included  by  the  invention  or   acquisition   of  improved  or
               supplemental equipment, by the discovery or development of new or
               improved process,  or of new materials,  and Printer and Customer
               mutually  agree  that the use of such  improved  or  supplemental
               equipment,  processes,  or materials would be advantageous,  then
               the parties shall  mutually agree on the nature and extent of the
               incorporation of said developments  into this Agreement.  Printer
               shall not  unreasonably  withhold such  technological  changes as
               long  as  such  changes  are  economically  advantageous  to both
               parties and Product prices  outlined in Schedule A and Outsourced
               Product  prices  outlined in Schedule D hereto are  appropriately
               adjusted.

      (f)      LEVEL LOADING DISCOUNTS.  Schedule C shall set forth the schedule
               of  discounts   which  Printer  shall  grant   Customer  for  the
               manufacture  of  incremental  volume of Product  during  non-peak
               periods. During the term of the Agreement,  Printer shall provide
               Customer  on or before  November  1st of each year a schedule  of
               non-peak periods throughout the coming calendar year during which
               the  non-peak  pricing  discounts  set forth at that  time  shall
               apply.  Customer  shall have right of first refusal for up to 25%
               of Printer's

     * Confidential treatment requested

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               maximum  printing and production  capacity during this period and
               shall  receive  such  discounts  with  respect  to any  order for
               Product  placed with Printer by Customer  for  delivery  during a
               non-peak period.

      (g)      *

      (h)      *

     * Confidential treatment requested

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1.6  PAYMENT. For the first two (2) years of the term of this Agreement, payment
     shall be on a net 30 days  basis  from  the  15th and 30th of the  previous
     month.  For the balance of the term the payment  terms shall be 2%/10 days,
     net 30 days  calculated  from the  date of the  consolidated  statement  of
     account.  Printer shall  invoice on a regular basis and Customer  shall pay
     all  invoices  issued  from the 1st to the 15th of each month no later than
     the 15th of the subsequent month and shall pay all invoices issued from the
     15th to the 31st of each month no later than the last day of the subsequent
     month.  Printer  shall send  Customer  consolidated  statements  of account
     identifying  invoices  outstanding  on the  15th  and  30th of each  month.
     Printer  shall submit all invoices and  consolidated  statements of account
     to:

                      Golden Books Publishing Company, Inc.
                      10101 Science Drive
                      Sturtevant, WI 53177

1.7  QUANTITY  VARIATIONS.  Billing for all quantities must agree with the total
     quantity  ordered  for such  title,  provided,  however,  that  billing for
     overruns and underruns is permitted but will be limited to +/- 5% for total
     quantity orders up to 50,000 and +/- 2% for total quantity orders in excess
     of 50,000. If a production  difficulty causes an underun of up to a maximum
     of 5% in the case of orders for quantities up to 50,000, and 2% in the case
     of orders for quantities over 50,000,  the Customer will permit the Printer
     to add the missing  volume to a future  re-print,  and will not require the
     Printer to reprint the missing volume until that time.

1.8  PROPRIETARY  DESIGN.  Printer  agrees  that it will not (at the  Sturtevant
     Facility or elsewhere)  produce for anyone  besides  Customer books similar
     to,  or  incorporating  any  of  the  distinguishing   characteristics  of,
     Customer's Little Golden Book(TM),  First Little Golden Book(TM), or Little
     Little Golden Book(TM). Such distinguishing  characteristics shall include,
     but not be limited to, the side  stitched  binding style and the foil spine
     employed  in the  production  of such  books,  as well as all  elements  of
     Customer's trade dress  incorporated  into such books.  Printer may request
     that Customer approve Printer's  utilization of such formats for work to be
     done for Books for Adults and may utilize such formats only upon  receiving
     Customer's  written  permission to do so, which permission shall be granted
     in Customer's sole discretion.

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1.9  ACQUISITION OF CUSTOMER OR ACQUISITION BY CUSTOMER In the event Customer is
     acquired  during  the  term  of  this  Agreement,   the  percentage  volume
     requirements  set  forth in  Section  1.1.1  hereof  shall not apply to any
     pre-existing  printing  requirements  of the  acquirer.  In the event  that
     during the term of this  Agreement,  the  Customer  acquires a company with
     similar  formats to those  outlined in this  Agreement  then the percentage
     volume  requirement  provisions  of this  Agreement  shall not apply to the
     incremental volume brought about by the acquisition but shall be subject to
     separate negotiations.

1.10 INVOICES.  Invoices  submitted  to  Customer by Printer  shall  contain the
     information contained in Schedule G.

1.11 FORECASTS.  Customer shall use commercially  reasonable  efforts to provide
     quarterly  forecasts to Printer  approximately  30 days before the start of
     each quarter, and monthly forecasts to Printer approximately 30 days before
     the start of the months of May, June, July, August, September,  October and
     November.  Such proceeds  shall not be deemed  "orders" under Section 1.1.1
     and Customer shall have no liability  whatsoever to Printer with respect to
     such forecasts.

                            2. ARTICLE II: MATERIALS
                               ---------------------

2.1  PRINTER SUPPLIED MATERIALS. Printer shall, at Customer's discretion, supply
     all  materials  and supplies  necessary to perform  this  Agreement,  at or
     exceeding quality  standards at inception.  Paper to be supplied by Printer
     shall  meet the  minimum  specifications  outlined  in  Schedule  E hereto.
     Printer shall supply all text stock and cover stock in accordance  with the
     requirements as outlined in Schedules A, B, D and E hereto.

2.2  CUSTOMER SUPPLIED MATERIALS.
     ---------------------------

     (a)   PAPER,  SEMI-FINISHED  MATERIALS AND COMPONENTS.  Customer shall have
     the  right  to  supply  its own  text  stock,  cover  stock,  semi-finished
     materials  and/or  components.  As  Printer  receives  stock on  Customer's
     behalf,  Printer shall forward the receiving slips to Customer.  If Printer
     discovers  damage to paper,  the damaged paper will be noted and identified
     and  stored   separately.   Printer   shall   contact   the   merchant/mill
     representative  and Customer so that the merchant/mill  representative  can
     initiate  any claims for mill  related  or paper  transportation  problems.
     Printer shall account for the paper  received from the  merchant/mill,  and
     shall submit to Customer a monthly report of paper received, paper received
     damaged,  paper consumed,  paper on hand and paper requirements,  with such
     paper requirements being inclusive of the manufacturing waste allowance for
     press work and binding. Any semi-finished  materials or components supplied
     by  Customer  will be supplied in such  quantities  so as to include  waste
     allowances.   Waste  allowances  for  paper,   semi-finished  materials  or
     components  will be based on the waste  allowances  which  would  have been
     provided by Printer had Printer been supplying such materials,

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     provided  further,  that such  waste  allowances  will be  consistent  with
     industry  standards.  Printer  will  report  actual and  allowed  component
     consumption for Customer supplied components on each invoice. Printer shall
     report all paper or stock received in damaged  condition to Customer within
     two (2) business  days from  discovery  of the damage.  Printer will report
     actual and allowed paper  consumption  for Customer  supplied paper on each
     invoice.  All over consumption of Customer  supplied paper will be credited
     to Customer directly on invoice at the price determined in Section 1.5. The
     value  (measured  at the  cost  determined  in  Section  1.5  if  possible,
     otherwise  at standard  cost) of any  Customer-supplied  materials  will be
     included for purposes of measuring  Customer's  compliance with the minimum
     volume  requirement,  as calculated in Section 1.2, even though Printer may
     not actually bill Customer for the value of the Customer supplied items.

     (b)   OTHER  MATERIALS.  Customer  shall  supply all film or digital  files
     pursuant to  Printer's  prior  specifications,  and if Customer so decides,
     Customer  shall  have the right to request  Printer  to produce  film at an
     additional cost as outlined in Subsection 1.4(a).

2.3  DELIVERY  OF  MATERIALS.  Customer  will  notify  Printer of the  scheduled
     delivery  dates and  specifications  for any  materials  it is supplying in
     accordance with Printer's published manufacturing schedule. In the event of
     any delay of the scheduled  delivery date in excess of 5 days,  Printer may
     invoice  Customer for all work done to date, and such work shall be subject
     to a storage fee of * per skid per week.

            3. ARTICLE III: REPRESENTATIONS AND WARRANTIES OF PRINTER
               ------------------------------------------------------

Printer represents and warrants to Customer as follows:

3.1  ORGANIZATION;  AUTHORITY.  Printer  is a  corporation  duly  organized  and
     validly  existing  under  the laws of  Canada  and has the full  power  and
     authority to own and operate its  properties and assets and to carry on its
     business as currently  conducted.  This Agreement has been duly authorized,
     executed  and  delivered  by Printer  and  constitutes  a valid and legally
     binding  obligation of Printer  enforceable  in  accordance  with its terms
     subject to bankruptcy,  insolvency,  fraudulent  transfer,  reorganization,
     moratorium and similar laws of general  applicability  affecting creditors'
     rights and general equity principles.

3.2  NON-CONTRAVENTION.   The  execution,   delivery  and  performance  of  this
     Agreement  will not result in a breach or violation of any of the terms and
     provisions of, or constitute a default under any statute, rule, regulation,
     or  order of any  governmental  agency  or body  having  jurisdiction  over
     Printer or its properties,  or any agreement or instrument to which Printer
     is a party or by which it is bound,  or the  articles of  incorporation  or
     by-laws of Printer.

     * Confidential treatment requested

                                       13

<PAGE>

            4. ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF CUSTOMER
               ------------------------------------------------------

Customer represents and warrants to Printer as follows:

4.1  ORGANIZATION;  AUTHORITY.  Customer is a  corporation  duly  organized  and
     validly existing under the laws of the State of Delaware and has full power
     and authority to own and operate its  properties and assets and to carry on
     its  business  as  currently  conducted.   This  Agreement  has  been  duly
     authorized,  executed and delivered by Customer and constitutes a valid and
     legally binding  obligation of Customer  enforceable in accordance with its
     terms   subject   to   bankruptcy,    insolvency,    fraudulent   transfer,
     reorganization,  moratorium  and  similar  laws  of  general  applicability
     affecting creditors' rights and general equity principles.

4.2  NON-CONTRAVENTION.   The  execution,   delivery  and  performance  of  this
     Agreement  will not result in a breach or violation of any of the terms and
     provisions of, or constitute a default under any statute, rule, regulation,
     or  order of any  governmental  agency  or body  having  jurisdiction  over
     Customer  or its  properties,  or any  agreement  or  instrument  to  which
     Customer  is  a  party  or  by  which  it  is  bound,  or  the  article  of
     incorporation or by-laws of Customer.

                   5. ARTICLE V: RISK OF LOSS/TITLE/INSURANCE
                      ---------------------------------------

5.1  TITLE.  All  property  furnished  to Printer  by  Customer,  including  all
     intellectual property rights in all electronic files, shall remain the sole
     property of Customer. Printer shall use reasonable diligence to protect all
     Customer  property in its possession.  Printer shall not cause any Customer
     property in its possession to become subject to any liens or  encumbrances.
     During the term of this  Agreement  and  following  the  expiration of this
     Agreement,  and upon  Customer's  instructions,  Printer  shall  return  or
     transfer   Customer   property  to  Customer   in   accordance   with  such
     instructions.

     Title  to film  negatives,  positives,  electronic  images  and  any  other
     material  paid for by  Customer  and  furnished  by  Printer  shall pass to
     Customer upon  completion  of  manufacture  of such item.  Title to product
     shall  pass  from  Printer  to  Customer  at the time risk of loss for such
     product passes from Printer to Customer.

5.2  RISK OF LOSS.  Risk of loss of Customer  property in  Printer's  possession
     shall be borne by Printer and valued at actual  current  cost to  reproduce
     such  Customer  property.  Work in the library or other space  subleased by
     Customer  from Printer  shall not be deemed to be in Printer's  possession.
     Risk of loss of product  shall pass from Printer to Customer  upon delivery
     of such product to Customer in accordance with Section 1.3 hereof.

                                       14

<PAGE>

5.3  INSURANCE.  Printer shall obtain and maintain at its costs,  throughout the
     term of this Agreement and for a period of not less than twelve (12) months
     after  the  termination  of  this  Agreement,   a  commercial  general  and
     professional  liability  insurance policy,  including product liability and
     contractual  liability,  providing  protection  for  Customer and the other
     entities  indemnified  by  Printer  under the terms of  Article  VII hereof
     against damages, liabilities, costs and expenses, including reasonable fees
     of attorneys,  arising out of any claims,  demands or actions made by or on
     behalf of any person or persons,  firm or  corporation  and arising out of,
     related to, or connected  with product and (i) the  performance  of Printer
     under the terms of this  Agreement,  (ii) the failure of Printer to perform
     properly under the terms of this Agreement,  or (iii) personal injury to or
     death of any person or persons or damage to property.  Such insurance shall
     be written on an  "occurrence"  and not on a "claims made" basis,  and such
     policy  shall  have  a  combined  single  limit  amount  of not  less  than
     US$5,000,000. As proof of such insurance, Printer shall submit to Customer,
     as soon as possible  after this  Agreement is executed by the last party to
     sign, a certificate  of insurance  naming  Customer and the other  entities
     indemnified  under the terms of Article VII hereof as  additional  insureds
     thereunder and providing for not less than thirty (30) days' written notice
     to  Customer  in  the  event  of  termination,  cancellation,  or  material
     modification of such insurance.

         6. ARTICLE VI: GUARANTEE OF QUALITY/COMPLIANCE WITH STANDARDS
            ----------------------------------------------------------

6.1  GUARANTEE  OF  QUALITY.   Printer   warrants  the  printing,   binding  and
     manufacturing  of  product  hereunder  to be  done  in the  best  and  most
     workmanlike  manner and to conform to the highest  standards  applicable in
     the industry.  The Customer  warrants that all computer files generated and
     provided to Printer shall be free of known viruses and that computer  files
     provided to the Printer  shall be prepared in a  professional  manner so as
     not to impede  production flow and quality.  The Printer  warrants that all
     files  shall be  checked  in  advance  for known  viruses  and  checked  to
     determine  that all components are available to the Printer on the supplied
     disk.  If  components  are required by the Printer from the  Customer,  the
     Printer  shall  always offer the Customer the choice of repairing or adding
     missing  components,  before any added charges are  required.  In addition,
     Printer warrants that all product shall be (a) merchantable and fit for the
     intended purpose of Customer,  and (b) free from defects in workmanship and
     material.  The  warranties  of these  sections  shall be in addition to any
     other  warranties  provided  by law or given by  Printer  to  Customer.  If
     Printer's performance does not conform to industry standards, then Customer
     shall at its option pursue only one of the following rights:

      (a)      As promptly as  practicable,  but no later than ten (10) business
               days from the date  Customer  reports  such  defect  to  Printer,
               Printer  shall repair or replace  defective  product at Printer's
               cost,  unless the defective  product has arisen from a problem at
               the  Printer's   subcontractor  and  the   subcontractor   cannot
               alleviate the problem  within the 10 business day time period (in
               which case Customer shall choose option (b) or (c)), or

                                       15
<PAGE>

      (b)      Printer  shall have  another  party  manufacture  or repair  such
               product for Customer, and either:

               (i)  Printer   shall  credit   Customer  for  the  cost  of  such
                    third-party manufacture or repair of product if Customer has
                    already paid Printer for the defective product, or,

               (ii) Pay to Customer the  difference  for the cost Printer  would
                    have charged to Customer to manufacture  the product and the
                    cost  to  Customer  to  have  the  third-party  manufacturer
                    produce  the  product,  if  Customer  has not  already  paid
                    Printer for the defective product; or

     (c)       Printer shall credit  Customer for some or all of the cost of the
               product, in relation to the damage suffered to the product,  with
               such credit to be applied against the costs of the manufacture of
               this or future product.

      The  foregoing  rights  shall  be in  addition  to such  other  rights and
      remedies Customer may have at law or in equity.

6.2  COMPLIANCE WITH LAWS,  CUSTOMER  STANDARDS.  Printer covenants that it will
     comply  with  all  applicable  laws  and  regulations  in  performing  this
     Agreement,   including  but  not  limited  to,  those   pertaining  to  the
     manufacture,  pricing,  sale and  distribution  of  product.  Printer  also
     covenants that it will comply with all of Customer's  licensor and Customer
     quality  standards  as  indicated to Printer  beforehand,  including  those
     relating  to the use of child or  prison  labor  and  upon the  request  of
     Customer,  Printer will supply the necessary  documentation to substantiate
     such compliance.

                         7. ARTICLE VII: INDEMNIFICATION
                            ----------------------------

Printer agrees to defend or settle,  indemnify and hold Customer, its directors,
officers, employees and agents harmless from and against any and all third party
demands, liabilities, obligations, costs and expenses (including reasonable fees
of attorneys) incurred by Customer,  directly or indirectly,  as a result of (i)
any breach by Printer of any of its agreements,  representations,  or warranties
made under the terms of this  Agreement or under the terms of any purchase order
of  Customer,  (ii) any  personal  injury or  property  damage  caused by or the
responsibility of Printer, or (iii) any material unauthorized deletion or change
made by Printer to materials  supplied by Customer.  Customer  hereby  agrees to
notify Printer promptly of any such demand or claim.

                                       16

<PAGE>

                          8. ARTICLE VIII: TERMINATION
                             -------------------------

8.1  TERMINATION. This Agreement may be terminated:

      (a)      At any time by the mutual  written  agreement of both Printer and
               Customer;

      (b)      *

      (c)      *

     * Confidential treatment requested

                                       17
<PAGE>

     (d)      By Customer,  upon a continuing default by Printer for  failure to
              furnish proof of insurance within thirty (30) days of demand.

     In the event that this  Agreement  is  terminated  by Customer  pursuant to
     Section 8.1 (a), (c) or (d) (any such termination  being herein referred to
     as a  termination  for  "Cause"),  then all amounts of Preferred  Stock (as
     defined  in  the  Agreement)  and/or  subordinated  debt  into  which  such
     Preferred  Stock is or was  convertible  will remain due and  unaffected by
     such termination.

     In the event that this  Agreement  is  terminated  by Printer  pursuant  to
     Section  8.1(b),  or if this Agreement is terminated by Customer other than
     for Cause, in either case, within the first three years of the term hereof,
     the  ownership  of the funds  held in  escrow  under the terms of the Asset
     Purchase Agreement in favor of the Customer, shall transfer to the Printer,
     and the subordinated note or the preferred shares held by Customer,  as the
     case  may  be,  shall  be  deemed  to be  redeemed  (or in the  case of the
     subordinated  note,  canceled)  to the extent of the amount of gross profit
     the Printer anticipated earning under this Agreement for the balance of the
     Term,  which for  purposes  hereof  shall be deemed to be 20% of  Printer's
     gross  revenues,  based upon minimum volumes under Section 1.2 (the "Agreed
     Upon  Damages").  In the event that this Agreement is terminated by Printer
     pursuant to Section 8.1(b),  or if this Agreement is terminated by Customer
     other than for Cause,  in either  case,  after the first three years of the
     term  hereof,  the  subordinated  notes  or the  preferred  shares  held by
     Customer,  as the case may be, shall be deemed to be redeemed to the extent
     of the Agreed Upon  Damages.  In such case,  the  Preferred  Stock shall no
     longer be puttable,  all redemption of Preferred  Stock shall be suspended,
     all payments of subordinated debt into which such Preferred Stock is or was
     convertible  shall  be  suspended  and the  Printer  shall be  relieved  of
     completing  its  obligations   under  the  Techno  Program  and  under  the
     Digitalization  Program.  In the event the amount of Agreed Upon Damages is
     greater than the aggregate  Liquidation  Value of the  Preferred  Stock (as
     defined in the Asset Purchase  Agreement) and/or the subordinated debt into
     which such Preferred Stock is or was convertible,  such excess amount shall
     be due and payable in cash at such time.  Printer  acknowledges  and agrees
     that  the  remedies  provided  for in this  Section  8.1 are the  exclusive
     remedies to which  Printer  would be entitled in the event of a termination
     of this  Agreement  by Printer  pursuant  to Section  8.1(b) or by Customer
     other than for Cause.  Without  limiting the  generality  of the  preceding
     sentence,  Printer  shall not be entitled  hereunder  or  otherwise  to any
     consequential,  incidental,  punitive or other similar  damages;  provided,
     however,  that nothing in this Printing Services  Agreement shall affect in
     any manner whatsoever, Buyer's right to obtain

                                       18
<PAGE>

     any such  damages in respect of any cause of action  Buyer may have against
     Customer in respect of  Customer's  actions or duties  outside the scope of
     this Printing Services  Agreement,  the Agreement or any other agreement or
     transaction referred to therein.

     Any termination of this Agreement  pursuant to this Section 8.1 shall be in
     writing and a copy  thereof  shall be furnished to GECC or any other senior
     lender of Printer designated by it; provided,  however, that the failure to
     furnish  such  copy  shall  not  affect  in any  respect  the  validity  or
     effectiveness of such termination.

8.2  RIGHT TO PRINT  ELSEWHERE.  If,  two (2)  times  in any  six-month  period,
     Printer is unable to deliver  orders of the same  product to  Customer on a
     timely  basis  in  accordance   with  this  Agreement  and  the  production
     guidelines  set  forth in  Schedule  B or D  hereto,  and in each  instance
     Customer has met its  obligation  for  delivery of  materials  required for
     manufacturing in accordance with such production guidelines, Customer shall
     have the right to have all  product of such  format  printed  elsewhere  if
     Customer so chooses.  In such event, the value of any such Product shall be
     deducted from the minimum volume amount as calculated in Section 1.2.

                          9. ARTICLE IX: MISCELLANEOUS
                             -------------------------

9.1  CONSEQUENCES  OF  TERMINATION.  In the event of  termination,  all Customer
     property, materials and supplies on hand or in process of manufacture shall
     be immediately  returned or delivered to Customer (or to another party that
     Customer  designates to receive  such).  All account  balances  between the
     parties shall be settled. Subject to Section 9.8 hereof, either party shall
     have the right to pursue its remedies under law and equity.

9.2  PARTIES IN INTEREST;  ASSIGNMENT.  Subject to the terms of this  Agreement,
     this  Agreement  shall be  binding  upon and  inure to the  benefit  of the
     respective  parties and their successors and assigns;  provided,  that this
     Agreement may not be assigned by either party  without the written  consent
     of the other, which consent shall not be unreasonably  withheld or delayed.
     Either  party  shall have the right to assign the  Agreement,  without  the
     consent  of  the  other,  to a  parent  company,  subsidiary,  division  or
     affiliate or to an entity which purchases  substantially  all of the assets
     of such party, or its assignee,  or in connection with an acquisition by or
     merger with another company, provided, however, that regardless of any such
     assignment, Printer agrees that the work performed under this contract with
     regard to  Product  will  continue  to be  substantially  performed  at the
     Sturtevant  Facility  unless moved to another  plant with the prior written
     approval of the Customer, which approval shall not be unreasonably withheld
     or delayed.  Notwithstanding  that work will be substantially  performed at
     the  Surtevant  Facility,  Printer  shall  immediately  notify  Customer in
     writing  when any work with  regard to  product  is  performed  under  this
     Agreement at a facility other than the Sturtevant Facility.

                                       19
<PAGE>

9.3  ENTIRE  AGREEMENT;   AMENDMENT.   This  Agreement   represents  the  entire
     understanding  between  Printer and  Customer  with  respect to the subject
     matter hereof and supersedes all prior agreements and  understandings  oral
     or written with respect thereto.  This Agreement may be modified or amended
     only by a written agreement signed by both parties.

9.4  GOVERNING  LAW.  This  Agreement  shall be  governed  by and  construed  in
     accordance with the laws of the State of New York.

9.5  HEADINGS. The paragraph headings in this Agreement are for convenience only
     and shall not affect the construction of this Agreement.

9.6  NO JOINT VENTURE.  Nothing in this Agreement shall be construed as creating
     an  agency,  partnership,   joint  venture  or  any  other  form  of  legal
     association between Printer and Customer.

9.7  NOTICE.  All  notices  hereunder  shall be deemed to have been  given if in
     writing and if  personally  delivered or if sent by registered or certified
     mail (postage prepaid),  or if sent by telecopier (provided that receipt of
     telecopy is promptly  confirmed by  telephone) to the person at the address
     set forth below, or to such other person or address as may be designated in
     writing from time to time:

If to Printer:

               Artech Capital Corporation
               Montreal, Quebec
               Canada ______________

               Attn:    David Watson
               Telecopier:

with a copy to:

               Sproule Castonguay Pollack, senc
               1002 Sherbrooke Street West
               Suite 2300
               Montreal, Quebec
               Canada  H3A 3R4

               Attn:    Me. Jean T. Castonguay
               Telecopier:  (514) 285-8050

                                       20
<PAGE>

With a copy to:

               General Electric Capital Corporation
               10 South LaSalle Street
               Suite 2800
               Chicago, Illinois 60603

               Attn:    Artech Printing Inc. Account Manager

If to Customer:

               Golden Books Publishing Company, Inc.
               888 Seventh Avenue
               New York, N.Y. 10106

               Attn:    Philip Galanes
               Telecopier:  212.547.6771

With copies to:

               Golden Books Family Entertainment, Inc.
               888 Seventh Avenue
               New York, N.Y. 10106

               Attn:    Ruth Camooso
               Attn:    Philip Galanes
               Telecopier: 212.547.6771

               Proskauer Rose LLP
               1585 Broadway
               New York, NY 10036

               Attn:  Robert A. Cantone, Esq.
               Telecopier: 212.969.2900

     Notice  shall be  deemed  to have  been  given  as of the  date  personally
     delivered or sent by telecopy (with  telephonic  confirmation) or as of the
     fifth (5th) business day after being sent by registered or certified mail.

9.8  ARBITRATION.  All  disputes  arising  out  of or in  connection  with  this
     Agreement or any  transaction  hereunder shall be finally settled under the
     Commercial  Arbitration Rules of the American Arbitration  Association then
     in effect by an  arbitrator  chosen from such  association's  blind pool of
     arbitrators with significant  knowledge and experience in the field of book
     publishing  who shall be  appointed  in  accordance  with such  Rules.  The
     arbitrator's award shall be final and binding. Judgment upon the

                                       21
<PAGE>

     award  rendered  may be entered in any court having  jurisdiction  over the
     party against which the award is rendered. The parties expressly consent to
     the  jurisdiction  of the federal and state courts situated in the State of
     New York for the  purpose  of  enforcing  any  arbitration  award  rendered
     pursuant to this paragraph.  The  arbitration  shall take place in New York
     City or such other place as the parties may agree.  The  arbitration  shall
     include (i) a provision that the prevailing party in such arbitration shall
     recover its costs of the arbitration and reasonable attorneys fees from the
     other party or parties, and (ii) the amount of such fees and costs.

9.9  SEVERABILITY. The enforceability, invalidity or illegality of any provision
     of this Agreement shall not affect or impair the  enforceability,  validity
     or legality of any other provision;  provided, that should any provision of
     this  Agreement  be held to be  invalid,  illegal or  unenforceable  in any
     respect, the parties will use all reasonable efforts to substitute a valid,
     legal and enforceable  provision which, insofar as practicable,  implements
     the purpose and intent of the invalid, illegal and unenforceable provision.
     To the extent  permitted by applicable law, each party waives any provision
     of law, which renders any provision of this Agreement  invalid,  illegal or
     unenforceable in any respect.

9.10 WAIVER.  Any provision of or default under this  Agreement may be waived if
     it is in  written  form  signed by the  party  against  whom the  waiver is
     effective.  No waiver by a party of any  provision of or default under this
     Agreement  shall be  deemed to be a waiver  of any  other  provision  of or
     default under this Agreement, nor shall any delay or omission of a party to
     exercise any right hereunder.

9.11 CONFIDENTIALITY.  Each of the parties hereto  covenants and agrees that the
     terms,  provisions  and  conditions  of this  Agreement  are  confidential,
     including,  but  not  limited  to  Customer  product,   materials,   ideas,
     information  and  concepts,   and  Printer's   pricing   formulations   and
     manufacturing  process and  techniques,  which  shall be kept in  strictest
     confidence  by  the  parties   hereto  and  their   respective   employees,
     subcontractors,  agents,  sub-agents  and  distributors,  and  shall not be
     disclosed to any person  except in  conformity  with an order of a court of
     competent jurisdiction or as may otherwise be required by law.

9.12 INTERVENTION.  Golden Books Family Entertainment, Inc. intervenes hereto to
     take  knowledge of the terms and conditions set forth herein and to declare
     itself  bound to the  Printer by all of the  obligations  and duties of the
     Customer  hereunder,  such that all rights  and  recourses  of the  Printer
     hereunder against the Customer may be exercised against Golden Books Family
     Entertainment, Inc.

                                  [END OF TEXT]

                                       22

<PAGE>

IN WITNESS WHEREOF,  the parties have signed this Agreement as of the date first
stated above.

  ARTECH CAPITAL CORPORATION             GOLDEN BOOKS PUBLISHING COMPANY, INC.

  By:                                    By:

    /s/                                         /s/
  -------------------------------             -------------------------------
  DAVID WATSON,                               Name:
  President and Chief Executive Officer       Title:

                                         GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.

                                         By:    /s/
                                              -------------------------------
                                              Name:
                                              Title:

                 [SIGNATURE PAGE TO PRINTING SERVICES AGREEMENT]

                                       23
<PAGE>

Golden Books:  Schedule A

[Confidential Treatment Requested]

                                       24
<PAGE>

Golden Books:  Schedule B

[Confidential Treatment Requested]

                                       25
<PAGE>

Golden Books:  Schedule C

[Confidential Treatment Requested]

                                       26
<PAGE>

Golden Books:  Schedule D

[Confidential Treatment Requested]

                                       27
<PAGE>

Golden Books:  Schedule E

[Confidential Treatment Requested]

                                       28
<PAGE>

Golden Books:  Schedule F

[Confidential Treatment Requested]

                                       29
<PAGE>

GOLDEN BOOKS - SCHEDULE G - INVOICING

All invoices  shall be generated  and  forwarded to Golden Books within 48 hours
from completion of shipment.

All invoicing shall include the following:

      o        Golden Books Purchase Order Number/PO date
      o        Item number
      o        Title Name

      o        Quantity ordered
      o        Quantity shipped

      o        Prep charges
      o        Plate charges

      o        Cover Makeready charges
      o        Cover run charges (unit cost and total cost)

      o        Text press and binding makeready
      o        Text press and binding run costs (unit cost and total cost)

      o        Paper makeready charges
      o        Paper run charges

      o        Cartoning charges (unit and total cost) -if applicable
      o        Stickering charges (unit and total cost) -if applicable

      o        all other miscellaneous charges itemized

      o        Paper stock used -grade name and basis weight
      o        Paper consumption makeready (#'s)
      o        Paper consumption run (#'s)
      o        Paper CWT cost

      o        Dies<PAGE>

                                                                     Exhibit 4.1

                                  Exhibit 4.1

                         SECURITIES PURCHASE AGREEMENT

     This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March
                                               ---------
22, 2000 is made by and among Greater Bay Bancorp, a California corporation,
with headquarters located at 2860 West Bayshore Road, Palo Alto, California (the
"Company"), and the investors named on the signature pages hereto (the
 -------
"Investors").
----------

                                   RECITALS:

     A.  The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act and Rule 506 under Regulation D.

     B.  The Investors desire, upon the terms and conditions stated in this
Agreement, to purchase shares of the Company's Common Stock, for an aggregate
purchase price of $12,000,000.  The purchase price per share of the Common Stock
is $37.00.

     C.  Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
under which the Company has agreed to provide certain registration rights under
the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.

     D.  The capitalized terms used herein and not otherwise defined have the
meanings given them in Article 8 hereof.

     In consideration of the premises and the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investors hereby agree as follows:

                                   ARTICLE I
                        PURCHASE AND SALE OF SECURITIES

     1.1  Purchase and Sale of Securities.  At the Closing, subject to the terms
          -------------------------------
of this Agreement and the satisfaction or waiver of the conditions set forth in
Articles VI and VII hereof, the Company will issue and sell to each Investor,
and each Investor will (on a several and not a joint basis) purchase from the
Company, the number of shares of Common Stock set forth beneath such Investor's
name on the signature pages hereof.

     1.2  Payment.  Each Investor will pay the purchase price for the number of
          -------
Securities set forth beneath its name on the signature pages hereof, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, upon delivery by the Company to each Investor of certificates
representing the Securities so purchased by such Investor and the Company will
deliver such certificates against delivery of the purchase price as described
above.
<PAGE>

     1.3  Closing Date.  Subject to the satisfaction or waiver of the conditions
          ------------
set forth in Articles VI and VII hereof, the Closing will take place at 12:00
p.m. Pacific Standard Time on March 23, 2000 or at another date or time agreed
upon by the parties to this Agreement (the "Closing Date"). The Closing will be
                                            ------- ----
held at the offices of Greater Bay Bancorp, 2860 West Bayshore Road, Palo Alto,
California, or at such other place as the parties agree.

                                  ARTICLE II
                   INVESTOR'S REPRESENTATIONS AND WARRANTIES

     Each Investor represents and warrants to the Company, severally and solely
with respect to itself and its purchase hereunder and not with respect to any
other Investor, that:

     2.1  Investment Purpose.  The Investor is purchasing the Securities for its
          ------------------
own account and not with a present view toward the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under
the Securities Act; provided, however, that by making the representation herein,
the Investor does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act.

     2.2  Accredited Investor Status.  The Investor is an "accredited investor"
          --------------------------
as defined in Rule 501(a) of Regulation D.

     2.3  Reliance on Exemptions.  The Investor understands that the Securities
          ----------------------
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Investor's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities.

     2.4  Information.  The Investor and its advisors, if any, have been
          -----------
furnished with all materials relating to the business, finances and operations
of the Company, and materials relating to the offer and sale of the Securities,
that have been requested by the Investor or its advisors, if any. The Investor
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigation
conducted by the Investor or any of its advisors or representatives modify,
amend or affect the Investor's right to rely on the Company's representations
and warranties contained in Article III below. The Investor acknowledges and
understands that its investment in the Securities involves a significant degree
of risk, including the risks reflected in the SEC Documents.

     2.5  Governmental Review.  The Investor understands that no United States
          -------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.

     2.6  Transfer or Resale.  The Investor understands that:
          ------------------

          (a)  except as provided in the Registration Rights Agreement, the
Securities have not been and are not being registered under the Securities Act
or any applicable state securities laws and, consequently, the Investor may have
to bear the risk of owning the Securities

                                       2
<PAGE>

for an indefinite period of time because the Securities may not be transferred
unless (i) the resale of the Securities is registered pursuant to an effective
registration statement under the Securities Act; (ii) the Investor has delivered
to the Company an opinion of counsel (in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (iii) the Securities are sold or transferred
pursuant to Rule 144; or (iv) the Securities are sold or transferred to an
affiliate (as defined in Rule 144) of the Investor pursuant to an exemption
from registration under the Securities Act.

          (b)  any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and

          (c)  except as set forth in the Registration Rights Agreement, neither
the Company nor any other person is under any obligation to register the
Securities under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.

     2.7  Legends.  The Investor understands that until (a) the Securities may
          -------
be sold by the Investor under Rule 144(k) or (b) such time as the resale of the
Securities have been registered under the Securities Act as contemplated by the
Registration Rights Agreement, the certificates representing the Securities will
bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the certificates for such
Securities):

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
     STATE OF THE UNITED STATES.  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
     ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
     SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
     TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
     REQUIREMENTS OF THOSE LAWS.

     The legend set forth above will be removed and the Company will issue a
certificate without the legend to the holder of any certificate upon which it is
stamped, in accordance with the terms of Article V hereof.

     2.8  Authorization; Enforcement.  This Agreement and the Registration
          --------------------------
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Investor and are valid and binding agreements of the Investor
enforceable in accordance with their terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and the application of general
principles of equity.

                                       3
<PAGE>

     2.9  Residency.  The Investor is a resident of the jurisdiction set forth
          ---------
immediately below such Investor's name on the signature pages hereto.

     2.10  Acknowledgements Regarding Placement Agent.  Purchaser acknowledges
           ------------------------------------------
that Keefe, Bruyette & Woods, Inc. is acting as placement agent (the "Placement
Agent") for the Securities being offered hereby and will be compensated by the
Company for acting in such capacity. Purchaser further acknowledges that the
Placement Agent has acted solely as placement agent in connection with the
offering of the Securities by the Company, that the information and data
provided to Purchaser in connection with the transactions contemplated hereby
have not been subjected to independent verification by the Placement Agent, and
that the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on its own
examination of the Company and the terms of, and consequences of, holding the
Securities. Purchaser further acknowledges that the provisions of this Section
2.10 are for the benefit of, and may be enforced by, the Placement Agent.

                                  ARTICLE III
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Investors that:

     3.1  Organization and Qualification.  The Company and each of the Banks is
          ------------------------------
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company and each of the Banks is duly qualified to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.

     3.2  Authorization; Enforcement.  (a) The Company has all requisite
          --------------------------
corporate power and authority to enter into and to perform its obligations under
this Agreement and the Registration Rights Agreement, to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof; (b) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation the issuance of the Securities) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required; (c) this Agreement and the Registration Rights Agreement have been
duly executed by the Company; and (d) each of this Agreement and the
Registration Rights Agreement constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
or moratorium or similar laws affecting the rights of creditors generally and
the application of general principles of equity.

                                       4
<PAGE>

     3.3  Capitalization.  As of March 15, 2000, the authorized capital stock of
          --------------
the Company consists of (a) 24,000,000 shares of Common Stock, of which
14,376,768 shares are issued and outstanding as of March 20, 2000 and (b)
4,000,000 shares of preferred stock, no par value per share, of which 1,200,000
shares are designated as Series A Preferred Stock and none are issued and
outstanding. All of the outstanding shares of capital stock are duly authorized,
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company, including the Securities issuable pursuant to this Agreement, are
subject to preemptive rights or any other similar rights of the shareholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in Schedule 3.3 and except for the
                                              ------------
transactions contemplated hereby, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into,
exercisable for, or exchangeable for any shares of capital stock of the Company,
or arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company; (ii) there are no agreements or
arrangements (other than the Registration Rights Agreement) under which the
Company is obligated to register the sale of any of its securities under the
Securities Act and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Securities.  The Company has made available to the Investors if requested
true and correct copies of the Company's Articles of Incorporation, as amended,
as in effect on the date hereof, the Company's By-laws as in effect on the date
hereof and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto.

     3.4  Issuance of Securities.  The Securities are duly authorized and, upon
          ----------------------
issuance in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, free from all taxes, liens, claims, encumbrances
and charges with respect to the issue thereof, will not be subject to preemptive
rights or other similar rights of shareholders of the Company, and will not
impose personal liability on the holders thereof.

     3.5  No Conflicts; No Violation.
          --------------------------

          (a)  The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) conflict with or result
in a violation of any provision of its Articles of Incorporation, as amended or
By-laws, as amended or (ii) violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment (including without limitation, the triggering
of any anti-dilution provision), acceleration or cancellation of, any agreement,
indenture, patent, patent license, or instrument to which the Company or any of
the Banks is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of the Banks or by which any property or asset of the Company
or any of the Banks is bound or affected (except for such conflicts, breaches,
defaults,

                                       5
<PAGE>

terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).

          (b)  The Company is not in violation of its Articles of Incorporation,
as amended, or By-laws, as amended, and neither the Company nor the Banks is in
default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of the Banks in default) under any agreement,
indenture or instrument to which the Company or any of the Banks is a party or
by which any property or assets of the Company or any of the Banks is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect.

          (c)  Neither the Company nor any of the Banks is conducting its
business in violation of any law, ordinance or regulation of any governmental
entity, the failure to comply with which would, individually or in the
aggregate, have a Material Adverse Effect.

          (d)  Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws or
any listing agreement with any securities exchange or automated quotation
system, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement, in each case in accordance with the terms hereof
or thereof, or to issue and sell the Securities in accordance with the terms
hereof. Except as set forth in Schedule 3.5, all consents, authorizations,
                               ------------
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the listing requirements of
Nasdaq.

     3.6  SEC Documents, Financial Statements.  Since December 31, 1997, the
          -----------------------------------
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents (other than exhibits) incorporated by reference therein,
being hereinafter referred to herein as the "SEC Documents"). The Company has
                                             -------------
delivered to each Investor, or each Investor has had access to, true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents.  As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  As of their
respective dates, the consolidated financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto.  Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim consolidated statements, to

                                       6
<PAGE>

the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). Except
as set forth in the financial statements included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (x) liabilities
incurred in the ordinary course of business subsequent to date of such financial
statements, (y) liabilities of the type not required under generally accepted
accounting principles to be reflected in such financial statements, and (z)
obligations under contracts and commitments not required under generally
accepted accounting principles to be reflected in such financial statements.
Such liabilities and obligations, would not, individually or in the aggregate,
have a Material Adverse Effect.

     3.7  Absence of Certain Changes.  Since December 31, 1999, there has been
          --------------------------
no material adverse change in the assets, liabilities, business, properties,
operations, financial condition, prospects or results of operations of the
Company on a consolidated basis.

     3.8  Absence of Litigation.  There is no action, suit, claim, proceeding,
          ---------------------
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or the Banks or any of
their officers or directors acting as such that would, individually or in the
aggregate, have a Material Adverse Effect.

     3.9  Intellectual Property Rights.  The Company and each of the Banks owns
          ----------------------------
or possesses the licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights necessary
to enable it to conduct its business as now operated (the "Intellectual
                                                           ------------
Property"). There is no claim or action or proceeding pending or, to the
--------
Company's knowledge, threatened that challenges the right of the Company or any
of the Banks with respect to any Intellectual Property.

     3.10  Tax Status.  The Company has made or filed all federal, state and
           ----------
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. To the knowledge
of the Company, there are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax. None of the Company's tax returns
is presently being audited by any taxing authority.

     3.11  No Integrated Offering.  Neither the Company, nor any of its
           ----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require

                                       7
<PAGE>

registration under the Securities Act of the issuance of the Securities to the
Investors. The issuance of the Securities to the Investors will not be
integrated with any other issuance of the Company's securities (past, current or
future) for purposes of the Securities Act or any applicable rules of Nasdaq.

     3.12  No Brokers.  The Company has taken no action which would give rise to
           ----------
any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with Keefe, Bruyette & Woods, Inc., whose commissions and
fees will be paid for by the Company.

     3.13  Insurance.  The Company and each of the Banks is insured by insurers
           ---------
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and the Banks are engaged.

     3.14  Investment Company Status.  The Company is not and upon consummation
           -------------------------
of the sale of the Securities will not be an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.

                                  ARTICLE IV
                                   COVENANTS

     4.1  Best Efforts.  Each party will use its commercially reasonable efforts
          ------------
to satisfy in a timely fashion each of the conditions to be satisfied by it
under Articles VI and VII of this Agreement.

     4.2  Form D; Blue Sky Laws.  The Company will file a Notice of Sale of
          ---------------------
Securities on Form D with respect to the Securities, as required under
Regulation D, and to provide a copy thereof to each Investor promptly after such
filing.  The Company will, on or before the Closing Date, take such action as it
reasonably determines to be necessary to qualify the Securities for sale to the
Investors under this Agreement under applicable securities (or "blue sky") laws
of the states of the United States (or to obtain an exemption from such
qualification), and will provide evidence of any such action so taken to the
Investors on or prior to the date of the Closing.

     4.3  Reporting Status; Eligibility to Use Form S-3.  The Company's Common
          ----------------------------------------------
Stock is registered under Section 12 of the Exchange Act. The Company will file
with the SEC a Current Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby within 10 business days after the Closing Date.
Throughout the Registration Period (as defined in the Registration Rights
Agreement), the Company will use its commercially reasonable efforts to timely
file all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC under the reporting requirements of the Exchange
Act, and the Company will not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and will take all reasonably necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3.

                                       8
<PAGE>

     4.4  Expenses.  The Company and each Investor is liable for, and will pay,
          --------
its own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other agreements to be executed
in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses.

     4.5  Financial Information.  The Company agrees to send to each Investor
          ---------------------
those reports which it generally sends to holders of its Common Stock until such
Investor transfers, assigns or sells all of its Securities.

     4.6  Listing.  On or before the tenth business day after the date of this
          -------
Agreement, the Company will use its commercially reasonable efforts to secure
the listing of the Securities upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Investor
owns any of the Securities, will use its commercially reasonable efforts
maintain such listing of the Securities.  The Company will use its commercially
reasonable efforts to obtain and, so long as any Investor owns any of the
Securities, maintain the listing and trading of its Common Stock on Nasdaq, or
the American Stock Exchange or the New York Stock Exchange and will use its
commercially reasonable efforts to comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers, Inc. and such exchanges, as
applicable.

     4.7  No Integration.  The Company will not make any offers or sales of any
          --------------
security (other than the Securities) under circumstances that would cause the
offering of Securities to be integrated with any other offering of securities by
the Company (i) for the purpose of any stockholder approval provision applicable
to the Company or its securities or (ii) for purposes of any registration
requirement under the Securities Act.

                                       9
<PAGE>

     4.8  Sales by Investors.  Each Investor will sell any Securities sold by it
          ------------------
in compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the Securities Act and the rules and regulations promulgated thereunder.
No Investor will make any sale, transfer or other disposition of the Securities
in violation of federal or state securities laws.

                                   ARTICLE V
                TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

     5.1  Issuance of Certificates.  The Company will instruct its transfer
          ------------------------
agent to issue certificates, registered in the name of each Investor or its
nominee, for the Securities. All such certificates will bear the restrictive
legend described in Section 2.7, except as otherwise specified in this Article
V. The Company will not give to its transfer agent any instruction other than as
described in this Article V and stop-transfer instructions to give effect to
Section 2.7 hereof (prior to registration of the Securities under the Securities
Act). Nothing in this Section will affect in any way the Investor's obligations
and agreement set forth in Sections 2.6 and 2.7 hereof to resell the Securities
pursuant to an effective registration statement or in compliance with an
exemption from the registration requirement of applicable securities laws.

     5.2  Unrestricted Securities.  If, unless otherwise required by applicable
          -----------------------
state securities laws, (a) the Securities represented by a certificate have been
registered under an effective registration statement filed under the Securities
Act, (b) a holder of Securities provides the Company and the Transfer Agent with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Securities may be made without registration under the Securities Act and
such sale either has occurred or may occur without restriction on the manner of
such sale or transfer, (c) such holder provides the Company and the Transfer
Agent with reasonable assurances that such Securities can be sold under Rule
144, or (d) the Securities represented by a certificate can be sold without
restriction as to the number of securities sold under Rule 144(k), the Company
will permit the transfer of the Securities, and the Transfer Agent will issue
one or more certificates, free from any restrictive legend, in such name and in
such denominations as specified by such holder. In the event that the
restrictive legend is removed from any of the certificates for the Securities
and thereafter the effectiveness of a registration statement covering such
Securities is suspended or terminated or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon a reasonable advance notice to the Investor the Company may require that
the restrictive legend be placed on any certificates for the Securities that
cannot be sold pursuant to an effective registration statement or under Rule
144, and each Investor shall cooperate in the replacement of such legend. Such
legend shall thereafter be removed when such Securities may again be sold
pursuant to an effective registration statement or Rule 144.

                                  ARTICLE VI
                CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL

     The obligation of the Company to issue and sell the Securities to each
Investor at the Closing is subject to the satisfaction by such Investor, on or
before the Closing Date, of each of

                                       10
<PAGE>

the following conditions. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:

     6.1  The Investor will have executed this Agreement and the Registration
Rights Agreement and will have delivered those agreements to the Company.

     6.2  The Investor will have delivered the purchase price for the Securities
to the Company in accordance with this Agreement.

     6.3  The representations and warranties of the Investor must be true and
correct in all material respects as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties must be correct as of such date), and
the Investor will have performed and complied in all material respects with the
covenants and conditions required by this Agreement to be performed or complied
with by the Investor at or prior to the Closing. The Company must have received
a certificate or certificates dated as of the Closing Date and executed by the
Investor or a duly authorized officer of the Investor certifying as to the
matters contained in this Section 6.3.

     6.4  No statute, rule, regulation, executive order, decree, ruling or
injunction will have been enacted, entered, promulgated or endorsed by or in any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

                                  ARTICLE VII
              CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE

     The obligation of each Investor hereunder to purchase the Securities from
the Company at the Closing is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions.  These conditions are for
each Investor's respective benefit and may be waived by any Investor at any time
in its sole discretion:

     7.1  The Company will have executed this Agreement and the Registration
Rights Agreement and will have delivered those Agreements to the Investor.

     7.2  The Company will have delivered to the Investors duly executed
certificates representing the Securities in the amounts specified in Section
1.1 hereof.

     7.3  The representations and warranties of the Company must be true and
correct in all material respects as of the Closing as though made at that time
(except for representations and warranties that speak as of a specific date,
which representations and warranties must be true and correct as of such date)
and the Company must have performed and complied in all material respects with
the covenants and conditions required by this Agreement to be performed or
complied with by the Company at or prior to the Closing. The Investor must have
received a certificate or certificates dated as of the Closing Date and executed
by the Chief Executive Officer or the Chief Financial Officer of the Company
certifying as to the matters contained in this Section 7.3 and as to such other
matters as may be reasonably requested by such Investor, including, but not
limited to, the Company's Articles of Incorporation, as amended, By-laws, as

                                       11
<PAGE>

amended, Board of Directors' resolutions relating to the transactions
contemplated hereby and the incumbency and signatures of each of the officers of
the Company who may execute on behalf of the Company any document delivered at
the Closing.

     7.4  No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction will have been enacted, entered, promulgated or endorsed by
or in any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated hereby
which prohibits the consummation of any of the transactions contemplated by this
Agreement.

     7.5  Trading and listing of the Common Stock on Nasdaq must not have been
suspended by the SEC or Nasdaq.

     7.6  The Investors will have received an opinion of the Company's general
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Investors and in substantially the form attached hereto as
Exhibit B.
---------

     7.7  The Company shall have delivered evidence reasonably satisfactory to
the Investors that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit C.
                                                             ---------

                                 ARTICLE VIII
                                  DEFINITIONS

     8.1  "Banks" means Bay Area Bank, Bay Bank of Commerce, Cupertino National
Bank, Golden Gate Bank, Mt. Diablo National Bank, Mid-Peninsula Bank and
Peninsula Bank of Commerce.

     8.2  "Closing" means the closing of the purchase and sale of the Securities
under this Agreement.

     8.3  "Closing Date" has the meaning set forth in Section 1.3.

     8.4  "Common Stock" means the common stock, no par value per share, of the
Company.

     8.5  "Company" means Greater Bay Bancorp.

     8.6  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     8.7   "Investors" means the investors whose names are set forth on the
signature pages of this Agreement.

     8.8  "Material Adverse Effect" means a material adverse effect on (a) the
business, operations, assets or financial condition of the Company on a
consolidated basis or (b) the ability of the Company to perform its obligations
pursuant to the transactions contemplated by this Agreement or under the
agreements or instruments to be entered into or filed in connection herewith.

                                       12
<PAGE>

     8.9  "Nasdaq" means the Nasdaq National Market System.

     8.10  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement and among the parties to this
Agreement, in the form attached hereto as Exhibit A.
                                          ---------

     8.11  "Regulation D" means Regulation D as promulgated under by the SEC
under the Securities Act.

     8.12  "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor rule.

     8.13  "SEC" means the United States Securities and Exchange Commission.

     8.14  "SEC Documents" has the meaning set forth in Section 3.6.

     8.15  "Securities" means the Common Stock sold pursuant to this Agreement.

     8.16  "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute.

                                  ARTICLE IX
                         GOVERNING LAW; MISCELLANEOUS

     9.1  Governing Law; Jurisdiction.  This Agreement will be governed by and
          ---------------------------
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.  The parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the State of California with respect to any dispute arising under
this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.

     9.2  Counterparts; Signatures by Facsimile.  This Agreement may be
          -------------------------------------
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed pages to be physically delivered to the other party within five
business days of the execution hereof.

     9.3  Headings.  The headings of this Agreement are for convenience of
          --------
reference only, are not part of this Agreement and do not affect its
interpretation.

     9.4  Severability.  If any provision of this Agreement is invalid or
          ------------
unenforceable under any applicable  statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or

                                       13
<PAGE>

unenforceable under any law will not affect the validity or enforceability of
any other provision hereof.

     9.5  Entire Agreement; Amendments.  This Agreement and the Registration
          ----------------------------
Rights Agreement (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. No provision of this Agreement
may be waived or amended other than by an instrument in writing signed by the
party to be charged with enforcement.

     9.6  Notices.  Any notices required or permitted to be given under the
          -------
terms of this Agreement must be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and will be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally, by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications are:

     If to the Company:  Greater Bay Bancorp
                         2860 West Bayshore Road
                         Palo Alto, California 94303
                         Attention:  Steven C. Smith
                         Facsimile:  (415) 494-9220

     With a copy to:     Greater Bay Bancorp
                         400 Emerson Street, 3rd Floor
                         Palo Alto, California 94301
                         Attention:  Linda M. Iannone, Esq.
                         Facsimile:  (650) 473-9419

                                      and

                         Manatt, Phelps & Phillips, LLP
                         11355 W. Olympic Boulevard
                         Los Angeles, CA 90064
                         Attention:  William T. Quicksilver, Esq.
                         Facsimile:  (310) 312-4224

     If to an Investor:  To the address set forth immediately below such
Investor's name on the signature pages hereto.

     Each party will provide written notice to the other parties of any change
in its address.

     9.7  Successors and Assigns.  This Agreement is binding upon and inures to
          ----------------------
the benefit of the parties and their successors and assigns. The Company will
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Investors, and no Investor may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company. Notwithstanding the foregoing, an Investor may assign
all or

                                       14
<PAGE>

part of its rights and obligations hereunder to any of its "affiliates," as that
term is defined under the Securities Act, without the consent of the Company so
long as the affiliate is an accredited investor (within the meaning of
Regulation D under the Securities Act) and agrees in writing to be bound by this
Agreement.

     9.8  Third-Party Beneficiaries.  This Agreement is intended for the benefit
          -------------------------
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

     9.9  Survival.  The representations and warranties of the Company and the
          --------
agreements and covenants set forth herein will survive the Closing hereunder.
The Company makes no representations or warranties in any oral or written
information provided to Investors, other than the representations and warranties
included herein.

     9.10  Further Assurances.  Each party will do and perform, or cause to be
           ------------------
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     9.11  No Strict Construction.  The language used in this Agreement is
           ----------------------
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

     9.12  Equitable Relief.  Each party acknowledges that a breach by it or its
           ----------------
obligations hereunder will cause irreparable harm to the other parties by
vitiating the intent and purposes of the transactions contemplated hereby.
Accordingly, each party acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach of
threatened by such party of the provisions of this Agreement, that the other
party shall be entitled, in addition to all other available remedies, to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.

        [The remainder of this page has been intentionally left blank]

                                       15
<PAGE>

     IN WITNESS WHEREOF, the undersigned Investors and the Company have caused
this Agreement to be duly executed as of the date first above written.

                              COMPANY:

                              GREATER BAY BANCORP

                              By: /s/ Steven C. Smith
                                  -------------------
                                  Name:   Steven C.  Smith
                                  Title:  Executive Vice President,
                                          Chief Administrative Officer
                                          and Chief Financial Officer

                      [Signatures continued on next page]

                                       16
<PAGE>

                              Investor: FRANKLIN SMALLCAP GROWTH FUND
                              --------

                              By:  /s/ Murray L. Simpson
                                   --------------------------------

                              -------------------------------------

                              Name:  Murray L. Simpson
                                     ------------------------------

                              Title  Vice President
                                     ------------------------------

                              Shares of Common Stock: 201,200
                                                      -------------

                              Aggregate Purchase Amount: $2,944,400
                                                         ----------

                              Investor: Emerging Small Company Trust
                              --------

                              By:  /s/ Murray L. Simpson
                                   --------------------------------

                              -------------------------------------

                              Name:  Murray L. Simpson
                                     ------------------------------

                              Title  Vice President
                                     ------------------------------

                              Shares of Common Stock: 7,900
                                                      -------------

                              Aggregate Purchase Amount: $292,300
                                                         ----------

                              Investor: U.S. SMALLCAP FUND
                              --------

                              By:  /s/ Murray L. Simpson
                                   --------------------------------

                              -------------------------------------

                              Name:  Murray L. Simpson
                                     ------------------------------

                              Title  Vice President
                                     ------------------------------

                              Shares of Common Stock: 1,700
                                                      -------------

                              Aggregate Purchase Amount: $62,900
                                                         ----------

                              Investor: FRANKLIN SMALLCAP INVESTMENTS FUND
                              --------

                              By:  /s/ Murray L. Simpson
                                   --------------------------------

                              -------------------------------------

                              Name:  Murray L. Simpson
                                     ------------------------------

                              Title  Vice President
                                     ------------------------------

                              Shares of Common Stock: 1,700
                                                      -------------

                              Aggregate Purchase Amount: $62,900
                                                         ----------

                              Investor: MERRILL LYNCH GLOBAL FINANCIAL SERVICES
                              --------
                                        PORTFOLIO, INC.

                              By:  /s/ James Ellman
                                   --------------------------------

                              -------------------------------------

                              Name:  James Ellman
                                     ------------------------------

                              Title  Vice President and Portfolio Manager
                                     ------------------------------------

                              Shares of Common Stock: 7,000
                                                      -------------

                              Aggregate Purchase Amount: $
                                                         ----------

                                       17
<PAGE>

                              Investor: MERRILL LYNCH EQUITY CONVERTIBLE SERIES-
                              --------
                                        FINANCIAL SERVICES PORTFOLIO

                              By:  /s/ James Ellman
                                   --------------------------------

                              -------------------------------------
                              Name:  James Ellman
                                     ------------------------------
                              Title  Portfolio Manager
                                     ------------------------------
                              Shares of Common Stock: 15,500
                                                      -------------
                              Aggregate Purchase Amount: $
                                                          ---------

                              Investor: LAWRENCE OFFSHORE PARTNERS, LLC
                              --------

                              By:  /s/ Lawrence Garshofsky
                                       ----------------------------

                              -------------------------------------
                              Name:  Lawrence Garshofsky
                                     ------------------------------
                              Title: Manager
                                     ------------------------------
                              Shares of Common Stock: 2,500
                                                      -------------
                              Aggregate Purchase Amount: $92,500
                                                         ----------

                              Investor: LAWRENCE PARTNERS, LP
                              --------

                              By:  /s/ Lawrence Garshofsky
                                   --------------------------------

                              -------------------------------------
                              Name:  Lawrence Garshofsky
                                     ------------------------------
                              Title: Manager
                                     ------------------------------
                              Shares of Common Stock: 2,500
                                                      -------------
                              Aggregate Purchase Amount: $92,500
                                                         ----------

                              Investor: SUNOVA LONG-TERM OPPORTUNITY FUND, LP
                              --------

                              By:  /s/ Matthew Byrnes
                                   --------------------------------

                              -------------------------------------
                              Name:  Matthew Byrnes
                                     ------------------------------
                              Title: Managing Partner
                                     ------------------------------
                              Shares of Common Stock: 9,000
                                                      -------------
                              Aggregate Purchase Amount: $333,000
                                                         ----------

                              Investor: MALTA OFFSHORE, LTD.
                              --------
                                        SANDLER O'NEILL ASSET MANAGEMENT

                              By:  /s/ Terry Maltese
                                   --------------------------------

                              -------------------------------------
                              Name:  Terry Maltese
                                     ------------------------------
                              Title: President
                                     ------------------------------
                              Shares of Common Stock: 900
                                                      -------------
                              Aggregate Purchase Amount: $33,300
                                                         ----------

                                       18
<PAGE>

                              Investor: MALTA HEDGE FUND II, LP
                              --------
                                        SANDLER O'NEILL ASSET MANAGEMENT

                              By:  /s/ Terry Maltese
                                   --------------------------------

                              -------------------------------------
                              Name:  Terry Maltese
                                     ------------------------------
                              Title  President
                                     ------------------------------
                              Shares of Common Stock: 3,600
                                                      --------------
                              Aggregate Purchase Amount: $133,200
                                                         -----------

                              Investor: MALTA HEDGE FUND, LP
                              --------
                                        SANDLER O'NEILL ASSET MANAGEMENT

                              By:  /s/ Terry Maltese
                                   --------------------------------

                              -------------------------------------
                              Name:  Terry Maltese
                                     ------------------------------
                              Title: President
                                     ------------------------------
                              Shares of Common Stock: 900
                                                      -------------
                              Aggregate Purchase Amount: $33,300
                                                         ----------

                              Investor: MALTA PARTNERS II, LP
                              --------
                                        SANDLER O'NEILL ASSET MANAGEMENT

                              By:  /s/ Terry Maltese
                                   --------------------------------

                              -------------------------------------
                              Name:  Terry Maltese
                                     ------------------------------
                              Title: President
                                     ------------------------------
                              Shares of Common Stock: 2,700
                                                      -------------
                              Aggregate Purchase Amount: $99,900
                                                        -----------

                              Investor: MALTA PARTNERS, LP
                              --------
                                        SANDLER O'NEILL ASSET MANAGEMENT

                              By:  /s/ Terry Maltese
                                   --------------------------------

                              -------------------------------------
                              Name:  Terry Maltese
                                     ------------------------------
                              Title: President
                                     ------------------------------
                              Shares of Common Stock: 900
                                                      -------------
                              Aggregate Purchase Amount: $33,300
                                                         ----------

                              Investor: NORTHAVEN PARTNERS, L.P.
                              --------

                              By:  /s/ Paul Burke
                                   --------------------------------

                              -------------------------------------
                              Name:  Paul Burke
                                     ------------------------------
                              Title: Member of General Partner
                                     ------------------------------
                              Shares of Common Stock: 4,100
                                                      -------------
                              Aggregate Purchase Amount: $151,700
                                                         ----------

                                       19
<PAGE>

                              Investor: NORTHAVEN PARTNERS II, L.P.
                              --------

                              By: /s/ Paul Burke
                                  ---------------------------------

                              -------------------------------------
                              Name: Paul Burke
                                    -------------------------------
                              Title Member of GP
                                    -------------------------------
                              Shares of Common Stock: 6,900
                                                      -------------
                              Aggregate Purchase Amount: $255,300
                                                          ---------

                              Investor: NORTHAVEN PARTNERS, III, L.P.
                              --------

                              By: /s/ Paul Burke
                                  ---------------------------------

                              -------------------------------------
                              Name: Paul Burke
                                    -------------------------------
                              Title Member of GP
                                    -------------------------------
                              Shares of Common Stock: 5,000
                                                      -------------
                              Aggregate Purchase Amount: $185,000
                                                          ---------

                              Investor: BANC FUND V, L.P.
                              --------

                              By: /s/ Charles J. Moore
                                  ---------------------------------

                              -------------------------------------
                              Name: Charles J. Moore
                                    -------------------------------
                              Title Member
                                    -------------------------------
                              Shares of Common Stock: 10,000
                                                      -------------
                              Aggregate Purchase Amount: $370,000
                                                          ---------

                              Investor: BANK FUND III TRUST
                              --------

                              By: /s/ Charles J. Moore
                                  ---------------------------------

                              -------------------------------------
                              Name: Charles J. Moore
                                    -------------------------------
                              Title Member
                                    -------------------------------
                              Shares of Common Stock: 7,784
                                                      -------------
                              Aggregate Purchase Amount: $288,008
                                                          ---------

                              Investor: BANC FUND III, L.P.
                              --------

                              By:  /s/ Charles J. Moore
                                   --------------------------------

                              -------------------------------------
                              Name:  Charles J. Moore
                                     ------------------------------
                              Title: Member
                                     ------------------------------
                              Shares of Common Stock: 2,540
                                                      -------------
                              Aggregate Purchase Amount: $93,980
                                                         ----------

                              Investor: MUTUAL FINANCIAL SERVICES FUND
                              --------

                              By: /s/ Raymond Garea
                                  ---------------------------------

                              -------------------------------------
                              Name:  Raymond Garea
                                     ------------------------------
                              Title: Senior Vice President
                                     ------------------------------
                              Shares of Common Stock: 20,000
                                                      -------------
                              Aggregate Purchase Amount: $740,000
                                                         ----------

                              Investor: NICHOLAS-APPLEGATE PACIFIC CENTURY
                              --------
                                        TRUST #2 SMALL

                              BY: /s/ Scott A. Long
                                  ---------------------------------

                              -------------------------------------
                              Name:  Scott A. Long
                                     ------------------------------
                              Title: Head of Global Operations
                                     ------------------------------
                              Shares of Common Stock: 9,600
                                                      -------------
                              Aggregate Purchase Amount $355,200
                                                        -----------

                              Investor: NICHOLAS-APPLEGATE SMALL CAP VALUE
                              --------

                              BY: /s/ Scott A. Long
                                  ---------------------------------

                              -------------------------------------
                              Name:  Scott A. Long
                                     ------------------------------
                              Title: Head of Global Operations
                                     ------------------------------
                              Shares of Common Stock: 300
                                                      -------------
                              Aggregate Purchase Amount $11,100
                                                        -----------

                              Investor: NICHOLAS-APPLEGATE CORNERSTONE/SHEPERD
                                         VALUE

                              BY: /s/ Scott A. Long
                                  ---------------------------------

                              -------------------------------------
                              Name:  Scott A. Long
                                     ------------------------------
                              Title: Head of Global Operations
                                     ------------------------------
                              Shares of Common Stock: 100
                                                      -------------
                              Aggregate Purchase Amount $3,700
                                                        -----------

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