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                                                                    EXHIBIT 10.7

                                                                  EXECUTION COPY


                             STOCK OPTION AGREEMENT

                  THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of
September 27, 2001, is by and between Temple-Inland Inc., a Delaware corporation
("Parent"), and Gaylord Container Corporation, a Delaware corporation (the
"Company").

                                   WITNESSETH

                  WHEREAS, Parent, Temple-Inland Acquisition Corporation, a
Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and the Company, concurrently with the execution and delivery of
this Agreement, will enter into an Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), providing for, among other things, the
acquisition of the Company by Parent by means of a cash tender offer for all of
the outstanding shares of Company Common Stock (as defined in Section 1.1) and
for the subsequent merger of Merger Subsidiary with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth in the Merger
Agreement; and

                  WHEREAS, as a condition to the willingness of Parent and
Merger Subsidiary to enter into the Merger Agreement, Parent and Merger
Subsidiary have required that the Company agree, and in order to induce Parent
and Merger Subsidiary to enter into the Merger Agreement the Company has agreed,
to grant Parent the Option (as hereinafter defined) upon the terms and subject
to the conditions of this Agreement.

                  NOW THEREFORE, in consideration of the execution and delivery
by Parent and Merger Subsidiary of the Merger Agreement and the foregoing and
the mutual representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, Parent and the Company hereby
agree as follows:

                                    ARTICLE I

                                   THE OPTION

                  Section 1.1 Grant of Option. The Company hereby grants to
Parent



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an irrevocable option (the "Option") to purchase up to such number of
newly-issued shares (the "Shares") of Class A Common Stock, par value $.0001 per
share, of the Company (the "Company Common Stock") as is equal to 19.9% of the
Shares outstanding on the date of exercise of the Option at a purchase price per
share of $1.80 (the "Exercise Price"), in the manner set forth in Sections 1.2
and 1.3 of this Agreement. The number of Shares that may be received upon the
exercise of the Option and the Exercise Price are subject to adjustment as
herein set forth. This Agreement shall terminate, and the Option hereby granted
shall expire, on the earliest of (i) the Effective Time (as defined in the
Merger Agreement) and (ii) the termination of the Merger Agreement.

                  Section 1.2 Exercise Of Option. At any time or from time to
time prior to the termination of the Option in accordance with the terms of this
Agreement, Parent (or its designee) may exercise the Option, in whole or in
part, if on or after the date hereof, Merger Subsidiary accepts for payment
pursuant to the Offer (as defined in the Merger Agreement) shares of Company
Common Stock constituting more than 66 2/3% but less than 90% of the shares of
Company Common Stock then outstanding on a fully diluted basis and the exercise
of the Option would result in Merger Subsidiary and its affiliates holding
shares of Company Common Stock representing 90% or more of the shares of Company
Common Stock then outstanding on a fully diluted basis.


                  In the event that Parent wishes to exercise all or any part of
the Option, Parent shall give written notice (the "Option Notice," with the date
of the Option Notice being hereinafter called the "Notice Date") to the Company,
specifying the number of Shares it will purchase and a place and date (not
earlier than three nor later than 20 business days from the Notice Date) for
closing such purchase (a "Closing"). Parent's obligation to purchase Shares, and
the Company's obligation to issue Shares, upon any exercise of the option is
subject (at its election) to the conditions that (i) no preliminary or permanent
injunction or other order against the purchase, issuance or delivery of the
Shares issued by any Federal, state or foreign court of competent jurisdiction
shall be in effect (and no action or proceeding shall have been commenced or
threatened for purposes of obtaining such an injunction or order) and (ii) any
applicable waiting period under the HSR Act (as defined in the Merger Agreement)
and any foreign antitrust or competition laws and regulations shall have expired
and (iii) there shall have been no material breach of the representations,
warranties, covenants or agreements of the other party contained in this
Agreement or the Merger Agreement; provided, however, that any failure by Parent
to purchase Shares, or any failure by the Company to issue Shares, upon exercise
of the Option at any Closing as a result of the nonsatisfaction of any of such
conditions shall not affect or prejudice Parent's right



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to purchase such Shares upon the subsequent satisfaction of such conditions.

                  Section 1.3 Purchase of Shares. At any Closing, (i) the
Company will deliver to Parent the certificate or certificates representing the
number of Shares being purchased in proper form for transfer upon exercise of
the Option in the denominations designated by Parent in the Option Notice, and,
if the Option has been exercised in part, a new Option evidencing the rights of
Parent to purchase the balance of the Shares subject thereto, and (ii) Parent
shall pay the aggregate purchase price for the Shares to be purchased by wire
transfer to a bank account designated in writing by the Company in an amount
equal to the Exercise Price times the number of shares to be purchased.

                  Section 1.4 Adjustments Upon Share Issuances, Changes in
Capitalization, etc. (a) In the event of any change in Company Common Stock or
in the number of outstanding shares of Company Common Stock by reason of a stock
dividend, split-up, recapitalization, combination, exchange of shares or similar
transaction or any other change in the corporate or capital structure of the
Company (including, without limitation, the declaration or payment of a dividend
of cash, securities or other property), the type and number of the Shares to be
issued by the Company upon exercise of the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Parent shall receive upon exercise of the Option the
number and class of shares or other securities or property that Parent would
have received with respect to the Company Common Stock if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable, and such Company Common Stock had elected to the fullest extent it
would have been permitted to elect, to receive such securities, cash or other
property.

                  (b) In the event that the Company shall enter into an
agreement (i) to consolidate with or merge into any person, other than Parent or
one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than Parent or one of its subsidiaries, to merge into the Company and the
Company shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Company Common Stock shall be
changed into or exchanged for stock or other securities of the Company or any
other person or cash or any other property, or the then outstanding shares of
Company Common Stock shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the surviving corporation or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Parent or one of its subsidiaries, then, and in each



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such case, proper provision shall be made in the agreements governing such
transaction so that Parent shall receive upon exercise of the Option the number
and class of shares or other securities or property that Parent would have
received with respect to Company Common Stock if the Option had been exercised
immediately prior to such transaction or the record date therefor, as
applicable, and such Company Common Stock had elected to the fullest extent it
would have been permitted to elect, to receive such securities, cash or other
property.

                  (c) The rights of Parent under this Section 1.4 shall be in
addition to, and shall in no way limit, its rights against the Company for any
breach of the Merger Agreement.

                  (d) The provisions of this Agreement shall apply with
appropriate adjustments to any securities for which the Option becomes
exercisable pursuant to this Section 1.4.

                                   ARTICLE II

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  The Company hereby represents and warrants to Parent as
follows:

                  Section 2.1 Authority Relative to this Agreement. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company, and no other corporate proceeding on the part
of the Company is necessary to authorize this Agreement or for the Company to
consummate such transactions. This Agreement has been duly and validly executed
and delivered by the Company and, assuming this Agreement constitutes the legal,
valid and binding obligation of Parent, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws, now or hereafter in effect, relating to or affecting creditors'
rights and remedies and to general principles of equity.

                  Section 2.2 No Conflict; Required Filings and Consents. The



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execution and delivery of this Agreement by the Company do not, and the
consummation of the transactions contemplated by and compliance with the
provisions of this Agreement will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws of the Company, in each case as amended
to the date of this Agreement, (ii) conflict with or violate any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or by which the Company is bound or affected, (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance of any kind on any of the Shares pursuant to, any agreement,
contract, indenture, notice or instrument to which the Company is a party or by
which the Company is bound or affected, or (iv) except for applicable
requirements, if any, of the HSR Act, the Exchange Act and the Securities Act of
1933, as amended (the "Securities Act"), require any filing by the Company with,
or any permit, authorization, consent or approval of, any governmental or
regulatory authority, domestic or foreign.

                  Section 2.3 Option Shares. The Company has taken all necessary
corporate action to authorize and reserve for issuance such number of Shares as
may be issuable upon exercise of the Option, and the Shares, when issued and
delivered by the Company to Parent upon exercise of the Option, will be duly
authorized, validly issued, fully paid and nonassessable shares of Company
Common Stock, and will be free and clear of any preemptive rights, security
interests, liens, claims, pledges, charges or encumbrances of any kind.

                                   ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF PARENT

                  Parent hereby represents and warrants to the Company as
follows:


                  Section 3.1 Authority Relative to this Agreement. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Parent has all requisite power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent, and no other



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corporate proceeding on the part of Parent is necessary to authorize this
Agreement or for Parent to consummate such transactions. This Agreement has been
duly executed and delivered by Parent and, assuming this Agreement constitutes
the legal, valid and binding obligation of the Company, constitutes a legal,
valid and binding obligation of Parent, enforceable against Parent in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and similar laws, now or hereafter in effect, relating to or affecting
creditors' rights and remedies and to general principles of equity.

                  Section 3.2 No Conflict, Required Filing and Consents. The
execution and delivery of this Agreement by Parent do not, and the consummation
of the transactions contemplated by and compliance with the provisions of this
Agreement will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws of Parent, in each case as amended to the date of this
Agreement, (ii) conflict with or violate any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or by which Parent is
bound or affected, (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, contract, indenture, note or instrument to which
Parent is a party or by which it is bound or affected or (iv) except for
applicable requirements, if any, of the HSR Act, the Exchange Act, and the
Securities Act, require any filing by Parent with, or any permit, authorization,
consent or approval of, any governmental or regulatory authority, domestic or
foreign, except in the case of each of the foregoing clauses (i) through (iv)
for any such conflicts, violations, breaches, defaults, failures to file or
obtain the consent or approval of, or other occurrences that would not cause or
create a material risk of non-performance or delayed performance by Parent of
its obligations under this Agreement.

                  Section 3.3 Investment Intent. The purchase of Shares pursuant
to this Agreement is for the account of Parent for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act and the rules and regulations
promulgated thereunder.

                                   ARTICLE IV

                              ADDITIONAL AGREEMENTS

                  Section 4.1 Transfer of Shares; Restrictive Legend. Parent
agrees to the placement on the certificate(s) representing the Shares of the
following legend:



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                  THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
         SECURITIES LAWS AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR
         IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

It is understood and agreed that the reference to restrictions arising under the
Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Shares have been sold in
compliance with the registration and prospectus delivery requirements of the
Securities Act or Parent has delivered to the Company a copy of a letter from
the staff of the Securities and Exchange Commission, or an opinion of counsel in
form and substance reasonably satisfactory to the Company and its counsel, to
the effect that such legend is not required for purposes of the Securities Act.

                  Section 4.2 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, Parent and the Company shall each use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Each party shall promptly consult with the other
and provide any necessary information and material with respect to all filings
made by such party with any governmental or regulatory authority in connection
with this Agreement or the transactions contemplated hereby.

                  Section 4.3 Further Assurances. The Company shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in Parent the power to carry out the provisions
of this Agreement. If Parent shall exercise the Option, or any portion thereof,
in accordance with the terms of this Agreement, the Company shall, without
additional consideration, execute and deliver all such further documents and
instruments and take all such further action as Parent may reasonably request
for the purpose of effectively carrying out the transactions contemplated by
this Agreement.

                  Section 4.4 Survival. All of the representations, warranties
and covenants contained herein shall survive a Closing and shall be deemed to
have been made as of the date hereof and as of the date of each Closing.



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                                    ARTICLE V

                                  MISCELLANEOUS

                  Section 5.1 Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto and specifically
referencing this Agreement.

                  Section 5.2 Notices. All notices, requests and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) or by telecopy (with copies by overnight courier) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):

                  (a)      if to Parent, to

                           Temple-Inland Inc.
                           303 South Temple Drive
                           Diboll, TX 75941
                           Attention: M. Richard Warner, Esq.
                           Fax:  936-829-3333

                           with a copy to (which shall not constitute notice):

                           Skadden, Arps, Slate, Meagher & Flom LLP
                           1440 New York Avenue, N.W.
                           Washington, DC  20005
                           Attention:  Stephen W. Hamilton, Esq.
                           Fax:  202-393-5760

                  (b)      if to the Company, to

                           Gaylord Container Corporation
                           500 Lake Cook Road, Suite 400
                           Deerfield, IL 60015
                           Attention: Daniel P. Casey
                           Fax:  847-405-5628




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                           with a copy to (which shall not constitute notice):

                           Kirkland & Ellis
                           200 East Randolph Drive
                           Chicago, IL  60601
                           Attention:  William S. Kirsch, P.C.
                                       John A. Schoenfeld
                           Fax: 312-861-2200

                  Section 5.3 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.

                  Section 5.4 Entire Agreement; No Third-Party Beneficiaries.
This Agreement and the Merger Agreement (including the documents and the
instruments referred to herein and therein): (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and (b) are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.

                  Section 5.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.

                  Section 5.6 Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties; any instrument purporting to
make such assignment shall be void. Notwithstanding the foregoing, the rights
and obligations of Parent hereunder may, upon written notice to the Company
prior to or promptly following such action, be assigned by Parent to any of its
corporate affiliates so long as such party remains an affiliate of Parent, but
no such transfer shall relieve Parent of its obligations hereunder if such
transferee does not perform such obligations. Subject to the first sentence of
this Section 5.6, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and assigns.

                  Section 5.7 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is



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accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal or state court sitting in the
State of Delaware.

                  Section 5.8 Severability. Any term or provision of this
Agreement that is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.

                            [Signature pages follow]



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                  IN WITNESS WHEREOF, each of Parent and the Company have caused
this Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.

                                            TEMPLE-INLAND INC.


                                            By: /s/ M. Richard Warner
                                               ---------------------------------
                                               Name:  M. Richard Warner
                                               Title: Vice President and Chief
                                                      Administrative Officer


                                            GAYLORD CONTAINER CORPORATION


                                            By: /s/ Daniel P. Casey
                                               ---------------------------------
                                               Name:  Daniel P. Casey
                                               Title: Executive Vice President



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