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                                                                    EXHIBIT 10.2
                       [LETTERHEAD OF GAYLORD CONTAINER]

December 20, 2000

Mr. Michael J. Keough
Gaylord/Deerfield

Dear Mr. Keough:

      This letter is written to outline the current terms of your employment by
Gaylord Container Corporation as President and Chief Operating Officer.

      Your current annual base salary is $385,000 (effective January 1, 2001),
subject to annual review by the Board of Directors, and you are eligible to
receive an annual cash bonus, with a target of 50% of base salary as determined
in the sole discretion of the Board of Directors.

      You are eligible for stock awards under the Gaylord Container Corporation
1997 Long-Term Equity Incentive Plan or any successor plans.

      You are entitled to participate in all Gaylord salaried employee benefit
plans and programs, including the Gaylord Container Retirement Plan, subject to
the terms and conditions of each plan. You are also entitled to be reimbursed
for all ordinary and necessary business expenses, including the fees and
expenses related to a country club membership.

      You are a participant in the Gaylord Container Corporation Supplemental
Executive Retirement Plan effective June 1, 1995, as amended March 1, 2000, a
copy of which is attached as Exhibit A.

      Upon your retirement, you may elect to continue your Group Medical and
Dental coverage by paying the full (employee and company) premium for the
coverage selected.

      In the event that you should become Totally and Permanently Disabled,
Gaylord (acting by resolution of the Board) may elect to terminate your
employment by written notice. In the case of termination, pursuant to this
paragraph, you will be entitled to receive your full base salary and benefits
for a period of 12 months following the date of such notice. "Totally and
Permanently Disabled"  means such physical or mental condition as is determined
by the Board in its sole discretion to be expected to continue indefinitely and
which renders you incapable of performing any substantial portion of your
duties (as confirmed by competent medical evidence).


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                                 [GAYLORD LOGO]

December 20, 2000
Page Two

      In the event of a change in control, you will be entitled to receive the
compensation and benefits set forth in the Severance Compensation Agreement
previously executed by you and Gaylord, a copy of which is attached as Exhibit
B. Upon completion of the thirty-six months of benefits coverage provided
therein, you may elect to continue your Group Medical and Dental coverage by
paying the full premium incurred by the successor for the coverage selected.

      In the event Gaylord elects to involuntarily terminate your employment
for any other reason, other than for cause, you will be entitled to receive
your full base salary and benefits each month for a period of 12 months
following the date of termination and, for the succeeding 12 months, your full
base salary and benefits for each month you are not employed and, if employed,
your full base salary, less your base salary from other employment.

      The terms of employment contained in this letter agreement are binding
upon the company and its successors.

      If you should have any questions relating to the matters set forth in
this letter, please contact me.


Very truly yours,

/s/ MARVIN A. POMERANTZ
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Marvin A. Pomerantz
Chairman and Chief Executive Officer