SUNTERRA CORP
EXHIBIT 10.3
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<TYPE>EX-10.3
<SEQUENCE>6
<FILENAME>dex103.txt
<DESCRIPTION>EXHIBIT 10.3
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                                                                    Exhibit 10.3
                              SUNTERRA CORPORATION
                             2002 STOCK OPTION PLAN

          Section 1. Purpose.

          The Sunterra Corporation 2002 Stock Option Plan (the "Plan") is
intended as an incentive to improve the performance, encourage the continued
employment and increase the proprietary interest of certain directors, officers,
advisors, employees and independent consultants of the Company participating in
the Plan. The Plan is designed to grant such directors, officers, advisors,
employees and independent consultants the opportunity to share in the Company's
long-term success through stock ownership and to afford them the opportunity for
additional compensation related to the value of Stock of the Company. It is
intended that certain options granted under this Plan may qualify as "incentive
stock options" under Section 422 of the Code.

          Section 2. Definitions.

          (a) "Affiliate" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

          (b) "Board" means the Board of Directors of the Company.

          (c) "Cause" means, in the absence of an employment, consulting or
other agreement otherwise defining Cause and applicable to a particular
Participant, (i) incompetence, fraud, personal dishonesty, embezzlement or acts
of gross negligence or gross misconduct on the part of Participant in the course
of his or her employment or services, (ii) a Participant's engagement in conduct
that is materially injurious to the Company or an Affiliate, (iii) a
Participant's conviction by a court of competent jurisdiction of, or pleading
"guilty" or "no contest" to, (x) a felony, or (y) any other criminal charge
(other than minor traffic violations) which could reasonably be expected to have
a material adverse impact on the Company's or an Affiliate's reputation or
business; or (iv) willful failure by a Participant to follow the lawful
directions of a superior officer or the Board.

          (d) "Code" means the Internal Revenue Code of 1986, as amended.

          (e) "Committee" means the Board or such committee of at least two
persons as the Board may appoint to administer the Plan; provided, however, for
so long as the Company is subject to Section 16(b) of the Exchange Act, each
member of the Committee shall, unless otherwise determined by the Board, be a
"nonemployee director" within the meaning of the rules promulgated under Section
16(b) and an "outside director" within the meaning of Section 162(m) of the
Code.

          (f) "Company" means Sunterra Corporation, a Maryland corporation.

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          (g) "Consultant" means any person, including any advisor, engaged by
the Company or an Affiliate to render consulting, advisory or other services and
who is compensated for such services. The term Consultant shall not include any
Director or any Employee.

          (h) "Director" means any director of either the Board or the board of
directors of an Affiliate who is not an Employee.

          (i) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

          (j) "Disqualifying Disposition" means any disposition (including any
sale) of Stock acquired by exercise of an Incentive Stock Option made within the
period which is (a) two years after the date the Participant was granted the
Incentive Stock Option or (b) one year after the date the Participant acquired
Stock by exercising the Incentive Stock Option.

          (k) "Effective Date" means the later of the date upon which (i) the
Board approves the Plan and (ii) the Company's plan of reorganization under
Chapter 11 of the United States Bankruptcy Code, which is confirmed by the U.S.
Bankruptcy Court for the District of Maryland (Baltimore Division), becomes
effective in accordance with its terms.

          (l) "Eligible Persons" means any (i) Employee, (ii) Director or (iii)
Consultant.

          (m) "Employee" means any person employed by the Company or an
Affiliate.

          (n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

          (o) "Fair Market Value" means as of any date (i) if the Stock is
listed on a national securities exchange, the mean between the highest and
lowest sale prices reported on the primary exchange with which the Stock is
listed and traded on the date prior to such date, or, if there is no such sale
on that date, then on the last preceding date for which such a sale was
reported, or (ii) if the Stock is not listed on any national securities exchange
but is quoted in the NASDAQ National Market or the NASDAQ Small Cap Market of
the National Association of Securities Dealers, Inc. on a last sale basis, the
mean between the highest and lowest sale prices reported for the date prior to
such date, or if there is no such sale on that date, then for the last preceding
date for which such a sale was reported. If, the Stock is not quoted in the
NASDAQ National Market or the NASDAQ Small Cap Market or listed on an exchange,
or representative quotes are not otherwise available, the Fair Market Value
shall mean the amount determined by the Board or the Committee in good faith to
be the fair market value per share of Stock.

          (p) "Form S-8" means a Form S-8 Registration Statement filed under the
Securities Act.

          (q) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

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          (r) "Nonqualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

          (s) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted pursuant to the Plan.

          (t) "Option Agreement" means a written agreement between the Company
and a Participant evidencing the terms and conditions of an individual Option
grant.

          (u) "Participant" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

          (v) "Securities Act" means the Securities Act of 1933, as amended.

          (w) "Stock" means the common stock of the Company, par value $0.01 per
share.

          (x) "Ten Percent Stockholder" means an individual who, at the time the
Option is granted, owns directly, or indirectly within the meaning of Section
424(d) of the Code, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any parent or subsidiary
thereof.

          Section 3. Administration

          (a) General. The Plan shall be administered by the Committee.

          (b) Powers of the Committee. Subject to the provisions of the Plan,
the Committee shall have sole authority, in its absolute discretion:

               (i) To determine from time to time which of the Eligible Persons
shall be granted Options, when and how each Option shall be granted, what type
or combination of types of Options shall be granted, the provisions of each
Option granted (which need not be identical), including the time or times when a
person shall be permitted to receive Stock pursuant to an Option; and the number
of shares of Stock with respect to which an Option shall be granted to each such
person;

               (ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration;

               (iii) To amend the Plan or an Option as provided in Section 13
hereof; and

               (iv) To exercise such powers and to perform such acts as the
Committee deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

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          (c) Committee Determinations. All determinations, interpretations and
constructions made by the Committee in good faith shall not be subject to review
by any person and shall be final, binding and conclusive on all persons.

          Section 4. Stock Subject to the Plan.

          (a) Share Reserve. Subject to Section 7 hereof relating to
adjustments, and Section 4(d) hereof, the total number of shares of Stock which
may be granted pursuant to Options hereunder shall not exceed, in the aggregate,
2,012,821 shares of Stock.

          (b) Source. The stock to be optioned under the Plan shall be shares of
authorized but unissued Stock or previously issued shares of Stock reacquired by
the Company on the open market or by private purchase

          (c) Reversion of Shares. If any Option shall for any reason expire, be
forfeited or otherwise terminate, in whole or in part, the shares of Stock not
acquired under such Option shall revert to and again become available for
issuance under the Plan. If shares of Stock under the Plan are reacquired by the
Company pursuant to any forfeiture provision, exercise of repurchase right or
withholding requirement, such shares shall again be available for issuance under
the Plan.

          (d) Acquisitions. In connection with an acquisition by the Company or
any Affiliate of another corporation or other business entity, any outstanding
grants, awards or sales of options or other similar rights pertaining to such
other corporation or other business entity may be assumed or replaced by Options
under the Plan upon such terms and conditions as the Board determines. The date
of any such grant or award shall relate back to the date of the initial grant or
award being assumed or replaced, and, subject to Board approval, service with
the acquired corporation or business shall constitute service with the Company
and its Affiliates for purposes of such grant or award. Any Shares underlying
any grant or award or sale pursuant to any such acquisition shall be disregarded
for purposes of applying, and shall not reduce the number of Shares available
under Section 4(a) above.

          (e) 162(m) Limitation. Subject to the provisions of Section 7 relating
to adjustments upon changes in the shares of Stock, no Employee shall be
eligible to be granted Options covering more than 750,000 shares of Stock during
any calendar year. Notwithstanding the foregoing, this Section 4(e) shall not
apply until such date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.

          Section 5. Eligibility.

          (a) General. Participation shall be limited to Eligible Persons who
have received written notification from the Committee, or from a person
designated by the Committee, that they have been selected to participate in the
Plan. Except in the case of Incentive Stock Options, Options may be granted to
Employees, Directors and Consultants.

          (b) Incentive Stock Option Limitation. Incentive Stock Options may be
granted only to Employees.

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          (c) Consultant Limitation. A Consultant shall not be eligible for the
grant of an Option if, at the time of grant, a Form S-8 is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (A) that such grant (1) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(2) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, and (B) that such grant complies
with the securities laws of all other relevant jurisdictions.

          Section 6. Options.

          (a) General. Options granted hereunder shall be in such form and shall
contain such terms and conditions as the Committee shall deem appropriate. All
Options shall be separately designated Incentive Stock Options or Nonqualified
Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates will be issued for shares of Common Stock purchased
on exercise of each type of Option. The provisions of separate Options shall be
set forth in an Option Agreement, which agreements need not be identical, and
each Option shall include (through incorporation of provisions hereof by
reference in the Option Agreement or otherwise) the substance of each of the
following provisions:

               (i) Term. The term upon which an Option shall remain exercisable
shall be determined by the Committee and shall be set forth in an applicable
Option Agreement; provided, that subject to Section 6(b) hereof in the case of
Incentive Stock Options, no Option granted hereunder shall be exercisable after
the expiration of ten (10) years from the date it was granted. Notwithstanding
the foregoing, in the event a Participant's employment or service with the
Company or an Affiliate is terminated, unless otherwise provided in the
applicable Option Agreement, the term of the Option shall expire on:

                    (A) the three-month anniversary of the date of any
          termination other than by reason of death, Disability or Cause;

                    (B) the one-year anniversary of the date of any termination
          by reason of death or Disability; or

                    (C) the date of any termination by the Company for Cause.

               (ii) Exercise Price. Subject to Section 6(b) hereof in the case
of Incentive Stock Options, the exercise price per share of Stock for each
Option shall be set by the Committee at the time of grant.

               (iii) Payment for Stock. Payment for shares of Stock acquired
pursuant to Options granted hereunder shall be made in full, upon exercise of
the Options (i) in immediately available funds in United States dollars, by
certified or bank cashier's check, (ii) by surrender to the Company of shares of
Stock that have either (a) been held by the holder of such Stock for at least
six-months, or (b) were acquired from a person other than the Company, (iii) by
a combination of (i) and (ii), (iv) in consideration received by the Company
under a formal

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cashless exercise program maintained with an outside broker adopted by the
Committee in connection with the Plan, or (v) by any other means approved by the
Committee.

               (iv) Vesting. An Option shall vest and become exercisable in such
manner and on such date or dates set forth in the Option Agreement, as may be
determined by the Committee; provided, however, that notwithstanding any vesting
dates set by the Committee, the Committee may in its sole discretion accelerate
the vesting of any Option, which acceleration shall not affect the terms and
conditions of any such Option other than with respect to vesting. However, the
immediately prior sentence is not intended to provide for any automatic
acceleration of vesting of any Option, which shall be left to the sole
discretion of the Committee. Unless otherwise specifically determined by the
Committee, the vesting of an Option shall occur only while the Participant is
employed or rendering services to the Company or its Affiliates and all vesting
shall cease upon a Participant's termination of employment or services for any
reason. If an Option is exercisable in installments, such installments or
portions thereof which become exercisable shall remain exercisable until the
Option expires.

               (v) Transferability of Options. An Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing, the Participant may, by delivering written notice
to the Company, in a form satisfactory to the Company, designate a third party
who, in the event of the death of the Participant, shall thereafter be entitled
to exercise the Option. Notwithstanding the foregoing, a Nonqualified Stock
Option shall be transferable to the extent provided in the Option Agreement.

               (vi) Early Exercise. The Option may, but need not, include a
provision whereby the Participant may elect at any time before the Participant's
employment or service terminates to exercise the Option as to any part or all of
the shares of Stock subject to the Option prior to the full vesting of the
Option. Any unvested shares of Stock so purchased shall be subject to a
repurchase right in favor of the Company and to any other restriction the
Committee determines to be appropriate.

          (b) Special Provisions Applicable to Incentive Stock Options.

               (i) Exercise Price of Incentive Stock Options. Subject to the
provisions of subsection (ii) hereof, the exercise price of each Incentive Stock
Option shall be not less than 100% of the Fair Market Value of the Stock subject
to the Option on the date the Option is granted.

               (ii) Ten Percent Stockholders. No Incentive Stock Option may be
granted to a Ten Percent Stockholder, unless such option (A) has an exercise
price of at least 110 percent of the Fair Market Value on the date of the grant
of such option; and (B) cannot be exercised more than five years after the date
it is granted.

               (iii) $100,000 Limitation. To the extent the aggregate Fair
Market Value (determined as of the date of grant) of Stock for which Incentive
Stock Options are exercisable for the first time by any Participant during any
calendar year (under all plans of the

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Company and its Affiliates) exceeds $100,000, such excess Incentive Stock
Options shall be treated as Nonqualified Stock Options.

               (iv) Early Expiration of Options. Unless otherwise provided by
the Committee, an Incentive Stock Option shall expire and no longer be
exercisable on the earliest of the following dates: (1) the expiration of the
term described in Section 6(a)(i) hereof, (2) the date three months after the
Participant ceases to be employed by the Company or its Affiliates for reasons
other than due to the Participant's death or Disability, and (3) the date one
year after the Participant ceases to be employed by the Company or its
Affiliates because of the Participant's death or Disability.

               (v) Disqualifying Dispositions. Each Participant who receives an
Incentive Stock Option must agree to notify the Company in writing immediately
after the Participant makes a Disqualifying Disposition of any Stock acquired
pursuant to the exercise of an Incentive Stock Option.

          Section 7. Adjustment for Recapitalization, Merger, Etc.

          (a) Capitalization Adjustments. The aggregate number of shares of
Stock which may be granted or purchased pursuant to Options granted hereunder,
the number of shares of Stock or other securities covered by each outstanding
Option, the maximum number of shares of Stock with respect to which any one
person may be granted Options in any calendar year, and the price per share
thereof in each such Option shall be equitably adjusted for any increase or
decrease in the number of outstanding shares of stock resulting from a stock
split or other subdivision or consolidation of shares of Stock, or for other
capital adjustments or payments of stock dividends or extraordinary dividends
payable in a form other than shares of Stock in an amount that has a material
effect on the Fair Market Value of the Stock or distributions or other increases
or decreases in the outstanding shares of Stock without receipt of consideration
by the Company. Any adjustment shall be conclusively determined by the
Committee.

          (b) Corporate Events. If the Company shall be sold, reorganized,
consolidated, or merged with another corporation, or if all or substantially all
of the assets of the Company shall be sold or exchanged (a "Corporate Event"),
all Options and shares acquired upon the exercise of Options shall be subject to
the provisions of the documentation effecting the Corporate Event: Such
documentation, may (but shall not be required to) provide, that (i) each
Participant shall, at the time of such Corporate Event, be entitled to receive
upon the exercise of his Option the same number and kind of shares of common
stock or the same amount of property, cash or other securities as he would have
been entitled to receive upon the occurrence of such Corporate Event as if he
had been, immediately prior to such event, the holder of the number of shares of
Stock covered by his Option, and (ii) if the Company is not the ultimate
surviving parent corporation in such Corporate Event, the Company shall require
the successor corporation or parent thereof to assume such outstanding Options.
Alternatively, such documentation may (but shall not be required to) provide
that the Committee, in its discretion and in lieu of requiring any successor
entity to assume outstanding Options, may determine whether all outstanding
vested and unvested Options shall terminate in connection with such Corporate
Event, and that the holders thereof will receive equitable consideration in
respect thereof determined on the basis of the securities, cash or other
property that would have been

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received in respect of the Stock subject to such Options, less the applicable
purchase price, if any.

          (c) Fractional Shares. Any adjustment made pursuant to this Section 7
may provide for the elimination of any fractional share which might otherwise
become subject to an Option.

          Section 8. Use of Proceeds

          The proceeds received from the sale of Stock pursuant to the Plan
shall be used for general corporate purposes.

          Section 9. Rights and Privileges as a Stockholder

          Except as otherwise specifically provided in the Plan, no person shall
be entitled to the rights and privileges of stock ownership in respect of shares
of Stock which are subject to Options hereunder until such shares have been
issued to that person.

          Section 10. Employment or Service Rights

          No individual shall have any claim or right to be granted an Option
under the Plan or, having been selected for the grant of an Option, to be
selected for a grant of any other Option. Neither the Plan nor any action taken
hereunder shall be construed as giving any individual any right to be retained
in the employ or service of the Company or an Affiliate.

          Section 11. Compliance With Laws

          The obligation of the Company to issue Stock upon exercise of Options,
or otherwise to make payment of Options in Stock or otherwise, shall be subject
to all applicable laws, rules, and regulations, and to such approvals by
governmental agencies as may be required. Notwithstanding any terms or
conditions of any Option to the contrary, the Company shall be under no
obligation to offer to sell or to sell and shall be prohibited from offering to
sell or selling any shares of Stock pursuant to an Option unless such shares
have been properly registered for sale pursuant to the Securities Act with the
Securities and Exchange Commission or unless the Company has received an opinion
of counsel, satisfactory to the Company, that such shares may be offered or sold
without such registration pursuant to an available exemption therefrom and the
terms and conditions of such exemption have been fully complied with. The
Company shall be under no obligation to register for sale or resale under the
Securities Act any of the shares of Stock issued upon exercise of Options. If
the shares of Stock offered for sale or sold under the Plan are offered or sold
pursuant to an exemption from registration under the Securities Act, the Company
may restrict the transfer of such shares and may legend the Stock certificates
representing such shares in such manner as it deems advisable to ensure the
availability of any such exemption.

          Section 12. Withholding Obligations

          The issuance of any shares upon the exercise of an option shall be
subject to the satisfaction by the participant of all applicable withholding
obligations. In the Committee's

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discretion, a Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Stock from the shares of Stock otherwise issuable
to the Participant as a result of the exercise or acquisition of Stock under the
Option, provided, however, that no shares of Stock are withheld with a value
exceeding the minimum amount of tax required to be withheld by law; or (iii)
delivering to the Company owned and unencumbered shares of Stock.

          Section 13. Amendment of the Plan or Options

          (a) Amendment of Plan. The Board at any time, and from time to time,
may amend the Plan; provided, however, that to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
promulgated under the Exchange Act, or any securities exchange listing
requirements, except as provided in Section 7 relating to adjustments upon
changes in Stock, no amendment shall be effective unless approved by the
stockholders of the Company.

          (b) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

          (c) Amendment of Stock Options. The Committee, at any time, and from
time to time, may amend the terms of any one or more Options; provided, however,
that the rights under any Option shall not be impaired by any such amendment
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

          Section 14. Termination or Suspension of the Plan

          The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.

          Section 15. Effective Date of the Plan

          The Plan shall be effective as of the Effective Date.

          Section 16. Miscellaneous

          (a) No Liability of Committee Members. No member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by such member or on his behalf in his capacity as a member of the
Committee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other
employee, officer or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated,

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against any cost or expense (including reasonable counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
willful misconduct, gross negligence or bad faith; provided, however, that
approval of the Board shall be required for the payment of any amount in
settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or By-Laws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.

          (b) Payments Following Accidents or Illness. If the Committee shall
find that any person who has an outstanding Option granted under the Plan (or
shares of Stock acquired upon the exercise of such an Option) is unable to care
for his affairs because of illness or accident, or is a minor, or has died, then
any payment due to such person or his estate (unless a prior claim therefor has
been made by a duly appointed legal representative) may, if the Committee so
directs the Company, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Committee and the Company therefor.

          (c) Governing Law. The Plan shall be governed by and construed in
accordance with the internal laws of the State of Maryland without reference to
the principles of conflicts of laws thereof.

          (d) Foreign Laws. The Committee may grant Options to individual
Participants who are subject to the tax laws of nations other than the United
States, which may have terms and conditions as determined by the Committee as
necessary to comply with applicable foreign laws. The Committee may take any
action which it deems advisable to obtain approval of such Options by the
appropriate foreign governmental entity; provided, however, that no such action
may be taken if they would violate the Exchange Act, the Code or any other
applicable law.

          (e) Reliance on Reports. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and its
Affiliates and upon any other information furnished in connection with the Plan
by any person or persons other than himself.

          (f) Construction. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings shall control. When used
herein, the masculine gender includes the feminine gender and the singular may
include the plural, unless the context clearly indicates to the contrary.

                                      * * *

As adopted by the Board of Directors of

Sunterra Corporation as of July 29, 2002

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</DOCUMENT>
