<PAGE>   1
                                                                    EXHIBIT 10.3




================================================================================




                      NONQUALIFIED STOCK OPTION AGREEMENT

                                    BETWEEN

                            SILVERLEAF RESORTS, INC.

                                      AND

                                THOMAS C. FRANKS





================================================================================
<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                      Page
                                                                                                                      ----
<S>                                                                                                                   <C>
RECITALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

ARTICLE I.
GRANT OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

         Section 1.1.     Grant of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         Section 1.2.     Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         Section 1.3.     Purchase Price  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
         Section 1.4.     Time for Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.5.     Partial Exercise  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.6.     Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.7.     Method of Exercise  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.8.     Termination of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

ARTICLE II
RESTRICTIONS AND LIMITATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

         Section 2.1.     Outstanding Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
         Section 2.2.     Effect on Other Agreements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
         Section 2.3.     Shares as Investment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         Section 2.4.     Reclassification, Consolidation, or Merger  . . . . . . . . . . . . . . . . . . . . . . . .   4
         Section 2.5.     Limitations Upon Transfer of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         Section 2.6.     Limitations Upon Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         Section 2.7.     Rights as Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4

ARTICLE III
ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5

         Section 3.1.     Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 3.2.     Binding Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 3.3.     Nonqualified Options  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 3.4.     Incorporation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 3.5.     Conditioned on Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
</TABLE>





                                      (i)
<PAGE>   3
                      NONQUALIFIED STOCK OPTION AGREEMENT
                                    BETWEEN
                            SILVERLEAF RESORTS, INC.
                                      AND
                                THOMAS C. FRANKS


         This Nonqualified Stock Option Agreement (the "Option Agreement") is
made between SILVERLEAF RESORTS, INC., a Texas Corporation (the "Company"), and
THOMAS C. FRANKS ("Optionee") effective as of the date specified below.

                                   RECITALS:

         A.      As Optionee is a valuable Officer and Employee of Silverleaf
Resorts, Inc., and has recognized leadership and experience in the business of
the Company, the Company deems it to be in its interest and in the interest of
its shareholders to provide an incentive to Optionee by granting Optionee an
additional proprietary interest in the Company, and the Company desires to
enter into this Option Agreement with Optionee under the terms and conditions
hereinafter set forth and to grant Optionee an option to purchase additional
common shares of the Corporation; and

         B.      The stock options granted hereunder are granted pursuant to
the terms of the 1997 Stock Option Plan for Silverleaf Resorts, Inc., which was
adopted by the Company and approved by the shareholders effective as of May 15,
1997, (the "Plan") and are intended to be Nonqualified Options as defined in
the Plan and not Incentive Options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"),

                                   AGREEMENT:

         NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the Parties agree as follows:

                                   ARTICLE I.
                                GRANT OF OPTION

         SECTION 1.1.     GRANT OF OPTION.  The Company hereby grants to
Optionee the right and option to purchase from it, on the terms and conditions
following, all or any part of an aggregate of TWENTY FIVE THOUSAND (25,000)
shares of the authorized $0.01 par value common shares of the Company.

         SECTION 1.2.     FAIR MARKET VALUE.  The fair market value of the
Company's $0.01 par value common shares as of the effective date of this Option
Agreement is FIFTEEN AND 9,375/10,000 DOLLARS ($15.9375) per share, as
determined by the Company's Board of Directors pursuant to Section 7.3 of the
Plan.

         SECTION 1.3.     PURCHASE PRICE.  The purchase price for each share
purchasable hereunder shall be SIXTEEN AND NO/100 DOLLARS ($16.00).
<PAGE>   4
         SECTION 1.4.     TIME FOR EXERCISE.   Optionee may elect to exercise
the options at the times and for the number of shares indicated as follows:

         (a)     On or after June 25, 1999, to and including June 24, 2000,
6,250 shares;

         (b)     On or after June 25, 2000, to and including June 24, 2001,
6,250 shares;

         (c)     On or after June 25, 2001, to and including June 24, 2002,
6,250 shares; and

         (d)     On or after June 25, 2002, to and including June 24, 2008 (the
"Option Termination Date"), 6,250 shares.

         However, if Optionee does not purchase the full number of shares to
which Optionee is entitled in either period (a), (b) or (c) above, Optionee is
permitted to purchase those remaining shares in a later period through and
including the Option Termination Date in addition to those shares which
Optionee may otherwise be entitled to purchase.

         SECTION 1.5.     PARTIAL EXERCISE.  No partial exercise of such option
may be for less than 100 full shares.

         SECTION 1.6.     FRACTIONAL SHARES.  In no event shall the Company be
required to transfer fractional shares to the Optionee.

         SECTION 1.7.     METHOD OF EXERCISE.  The option shall be exercised by
Optionee as to all or part of the shares covered by the option by giving
written notice of such exercise to the Company, specifying the number of shares
to be purchased and specifying a business day not more than fifteen (15) days
from the date such notice is given, for the payment of the purchase price
against delivery of the shares being purchased.  Such notice shall set forth a
statement, if required by Section 8.8 of the Plan and Section 2.3 of this
Option Agreement, that the shares are being acquired for investment.

         Subject to any applicable laws or regulations and to the terms of
Sections 8.8, 11.5, and 12.1 of the Plan, the Company shall cause certificates
for the Shares so purchased to be delivered to Optionee at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise, such payment to be made in cash
or by certified check or by transfer and delivery of shares of the common stock
of the Company as provided in Section 7.4 of the Plan.

         SECTION 1.8.     TERMINATION OF OPTION.  The option and all rights
granted by this Option Agreement, to the extent those rights have not been
exercised, will terminate and become null and void on the sooner of:

         (a)     Such date as is ten (10) years from the date of this Option
                 Agreement;

         (b)     The Option Termination Date as defined in Section 1.4 hereof;





                                       2
<PAGE>   5
         (c)     The date which is three months after the date Optionee ceases
                 to continually serve as an Officer or Employee of the Company,
                 if such cessation is by disability, retirement, or dismissal
                 other than for cause, as defined in Section 9.4 of the Plan,
                 provided that in the event of Optionee's cessation of office
                 or employment under such terms, Optionee may exercise such
                 option only to the extent that Optionee was entitled to
                 exercise it on the date of Optionee's cessation of office or
                 employment;

         (d)     The date Optionee ceases to continually serve as an Officer or
                 Employee of the Company if such cessation is by voluntary
                 termination or dismissal for cause as defined in Sections 9.3
                 and 9.4 of the Plan; or

         (e)     The date which is one year following the death of Optionee if
                 Optionee dies while serving as an Officer or Employee of the
                 Company or within the three-month period following the
                 termination of such office or employment if such termination
                 was by disability, retirement, or dismissal other than for
                 cause.  In the event of Optionee's death under such terms, the
                 person or persons to whom Optionee's rights under the option
                 shall pass, whether by will or by the applicable laws of
                 descent and distribution, may exercise such option pursuant to
                 Section 8.7 of the Plan only to the extent that Optionee was
                 entitled to exercise it on the date of Optionee's death.

For purposes of the foregoing provisions, serving as an Officer or Employee of
a subsidiary of the Company shall be deemed to be serving as an Officer or
Employee of the Company.


                                   ARTICLE II
                          RESTRICTIONS AND LIMITATIONS

         SECTION 2.1.     OUTSTANDING OPTIONS.  The option granted to Optionee
under this Option Agreement shall in no event be exercised while there is
outstanding any Incentive Option previously granted to Optionee to purchase
common shares of the Company at a price higher than the option price under the
option herein granted to Optionee.

         SECTION 2.2.     EFFECT ON OTHER AGREEMENTS.  Nothing herein contained
shall be deemed to modify the terms of any other agreement between the Company
and Optionee.

         SECTION 2.3.     SHARES AS INVESTMENT.  By accepting this option and
if required by the Plan, Optionee acknowledges for Optionee, Optionee's heirs,
and legatees that any and all shares purchased under this Option Agreement
shall be acquired for investment and not for or with a view towards
distribution, and upon the transfer of any or all of the shares subject to the
option granted hereunder, Optionee, or Optionee's heirs or legatees receiving
such shares, shall deliver to the Company a representation in writing that such
shares are being acquired in good faith for investment and not for or with a
view towards distribution.





                                       3
<PAGE>   6
         SECTION 2.4.     RECLASSIFICATION, CONSOLIDATION, OR MERGER.
Adjustments to the number of shares subject to the option and the option price
for them shall be proportionately adjusted, pursuant to Section 10.1 of the
Plan.

         SECTION 2.5.     LIMITATIONS UPON TRANSFER OF OPTION.  During the
lifetime of Optionee, the option and all rights granted in this Option
Agreement shall be exercisable only by the Optionee, and except as Section
1.8(e) of this Option Agreement otherwise provides, the option and all rights
granted under this Option Agreement shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment, or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of such
option or of such rights contrary to the provisions in this Option Agreement,
or upon the levy of any attachment or similar process upon such option or such
rights, such option and such rights shall immediately become null and void.

         SECTION 2.6.     LIMITATIONS UPON TRANSFER OF SHARES.  No shares
acquired by Optionee pursuant to this Option Agreement shall be sold or
disposed of within six (6) months following the date of acquisition of such
shares, unless either the grant of this Non-Qualified Option is approved by the
Board of Directors, or a committee of the Board of Directors that is composed
solely of two or more non-employee directors as defined in Rule 16b-3 of the
Exchange Act, or the grant of this Non-Qualified Option is approved or
ratified, in compliance with section 14 of the Exchange Act, by either:  the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the state or other jurisdiction in which
the Company is incorporated, or the written consent of the holders of a
majority of the securities of the Company entitled to vote, provided that such
ratification occurs no later than the date of the next annual meeting of the
shareholders.  Any attempted sale, disposal or transfer of such shares shall be
without effect.  All shares transferred to Optionee pursuant to the exercise of
the option granted hereby shall be clearly marked with the foregoing
restrictions on transfer.

         SECTION 2.7.     RIGHTS AS SHAREHOLDER.  Neither Optionee nor
Optionee's executor, administrator, heirs, or legatees, shall be or have any
rights or privileges of a shareholder of the Company in respect of the shares
transferable upon exercise of the option granted under this Option Agreement,
unless and until certificates representing such shares shall have been
endorsed, transferred, and delivered and the Optionee, or the Optionee's
executor, administrator, heirs or legatees, as the case may be, has caused his
name to be entered as the shareholder of record on the books of the Company.





                                       4
<PAGE>   7
                                  ARTICLE III
                           ADMINISTRATIVE PROVISIONS

         SECTION 3.1.     NOTICES.  Any notice to be given under the terms of
this Option Agreement shall be addressed to the Parties as follows:

                 If to the Company:

                                  Silverleaf Resorts, Inc.
                                  Attn:  Robert E. Mead, Chief Executive Officer
                                  1221 Riverbend Drive, Suite 120
                                  P.O.Box 358
                                  Dallas, Texas 75221

                 If to Optionee:

                                  Thomas C. Franks
                                  1504 Cottonwood Valley Circle North
                                  Irving, Texas  75038


         Any Party may change its address by giving notice in writing, stating
its new address, to the other Party as provided in the foregoing manner.  Any
notice shall be deemed duly given when enclosed in a properly sealed envelope
or wrapper addressed as herein required certified and deposited (postage and
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.

         SECTION 3.2.     BINDING EFFECT.  This Option Agreement shall be
binding upon the heirs, executors, administrators, and successors of the
parties hereto.

         SECTION 3.3.     NONQUALIFIED OPTIONS.  The options granted hereunder
are intended to be Nonqualified Options as defined in the Plan.

         SECTION 3.4.     INCORPORATION OF THE PLAN.  The terms, conditions and
limitations contained in the Plan are incorporated herein by reference and such
provisions shall control to the extent they are not specifically contrary to a
provision of this Option Agreement.





                                       5
<PAGE>   8
          EXECUTED this 17th day of July, 1998, but EFFECTIVE the 25th day of
June, 1998.

                                    SILVERLEAF RESORTS, INC., the Company
                                    
                                    
                                    
                                    By:      /s/ Robert E. Mead               
                                             ---------------------------------
                                             Robert E. Mead, Chief Executive 
                                             Officer
                                    
                                    
                                    
                                    /s/ Thomas C. Franks                       
                                    ------------------------------------------
                                    THOMAS C. FRANKS





                                       6