Exhibit 10.3


 


NOTICE
OF GRANT OF NON-QUALIFIED STOCK OPTION


ENER-CORE,
INC.

2015 OMNIBUS INCENTIVE PLAN


 


FOR
GOOD AND VALUABLE CONSIDERATION, Ener-Core, Inc. (the “Company”) hereby grants, pursuant to the provisions
of the Ener-Core, Inc. 2015 Omnibus Incentive Plan (the “Plan”), to the Grantee designated in this Notice of
Grant of Non-Qualified Stock Option (the “Notice of Grant”) a Non-qualified Stock Option to purchase the number
of Shares set forth in the Notice of Grant (the “Option”), subject to certain terms and conditions as outlined
below in the Notice of Grant and the additional terms and conditions set forth in the attached Terms and Conditions of Stock Option
(together with the Notice of Grant, the “Award Agreement”).


 


	Grantee:	 	Stephen
    Markscheid
	 	 	 
	Type
    of Option:	 	Non-qualified
    Stock Option
	 	 	 
	Grant
    Date:	 	July
    1, 2016
	 	 	 
	Number
    of Shares Purchasable:	 	6,000
    Shares of Common Stock
	 	 	 
	Option
    Price per Share:	 	$4.31,
    which is at or above the Fair Market Value as of the Grant Date
	 	 	 
	Expiration
    Date:	 	July
    1, 2026, which is 10 years from the Grant Date
	 	 	 
	Exercisability
    Schedule:	 	Vesting
        schedule as follows: (i) 1/4 of the total number of options will be vested on June 29, 2017, and (ii) 1/48 of the total
        number of options will be vested after each month thereafter.

         

        Notwithstanding
        the foregoing Exercisability Schedule, exercisability of all or some portion of the Option may be accelerated in accordance
        with the terms and conditions of Section 2(c) of the attached Terms and Conditions.

	 	 	 
	Exercise
    after Separation from Service:	 	Separation
        from Service for any reason other than death, Disability or Cause: any non-exercisable portion of the Option expires
        immediately and any exercisable portion of the Option remains exercisable for 90 days following Separation from Service
        for any reason other than death, Disability or Cause;

         

        Separation
        from Service due to death or Disability: any non-exercisable portion of the Option expires immediately and any exercisable
        portion of the Option remains exercisable for 12 months following Separation from Service due to death or Disability;
        and

         

        Separation
        from Service for Cause: the entire Option, including any exercisable and non-exercisable portion, expires immediately
        upon Separation from Service for Cause.

         

        In
        no event may THE Option be exercised after the Expiration Date as provided above.



 






    	 	Notice of Grant - Page 1	 



     


    

 


By signing
below, the Grantee agrees that the Option is granted under and governed by the terms and conditions of the Plan and the Award
Agreement, as of the Grant Date.


 





	GRANTEE	 	ENER-CORE,
    INC.
	 	 	 	 	 
	Sign
    Name:	/s/
    Stephen Markscheid	 	Sign
    Name:	/s/
    Alain Castro
	 	 	 	 	 
	Print
    Name:	Stephen
    Marksheid	 	Print
    Name:	Alain
    Castro
	 	 	 	 	 
	 	 	 	Title:	Chief
    Executive Officer







 






    	 	Notice of Grant - Page 2	 



     


    

 


TERMS
AND CONDITIONS OF STOCK OPTION


 


1.      Grant
of Option. The Option granted to the Grantee and described in the Notice of Grant is subject to the terms and conditions of
the Plan. The terms and conditions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set
forth herein, the Award Agreement shall be construed in accordance with the terms and conditions of the Plan. Any capitalized
term not otherwise defined in the Award Agreement shall have the definition set forth in the Plan.


 


The
Board and the stockholders of the Company have approved the Plan. The Committee has approved the grant to the Grantee of the Option,
conditioned upon the Grantee’s acceptance of the terms and conditions of the Award Agreement within 60 days after the Award
Agreement is presented to the Grantee for review.


 


If
designated in the Notice of Grant as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option.
To the extent that the Option fails to meet the requirements of an Incentive Stock Option or is not designated as an Incentive
Stock Option, the Option shall be treated as a Non-qualified Stock Option.


 


2.     Exercise
of Option.


 


(a)     Right
to Exercise. The Option shall be exercisable, in whole or in part, during its term in accordance with the Exercisability Schedule
set forth in the Notice of Grant and with the applicable provisions of the Plan and the Award Agreement. No Shares shall be issued
pursuant to the exercise of the Option unless the issuance and exercise comply with applicable laws. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to the Grantee on the date on which the Option is exercised
with respect to such Shares. Until such time as the Option has been duly exercised and Shares have been delivered, the Grantee
shall not be entitled to exercise any voting rights with respect to such Shares, shall not be entitled to receive dividends or
other distributions with respect thereto and shall not have any other rights of a stockholder with respect thereto.


 


(b)      Method
of Exercise. The Grantee may exercise the Option by delivering an exercise notice in a form approved by the Company (the “Exercise
Notice”), which shall state the election to exercise the Option, the number of Shares with respect to which the Option
is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall
be accompanied by payment of the aggregate Option Price as to all Shares exercised. The Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Option Price (as well as any applicable
withholding or other taxes).


 


(c)     Acceleration
of Exercisability under Certain Circumstances. The exercisability of the Option shall not be accelerated under any circumstances,
except as otherwise provided in the Plan; provided, however, that the Option shall become fully exercisable immediately
prior to, and contingent upon, a Change in Control.


 


3.     Method
of Payment. If the Grantee elects to exercise the Option by submitting an Exercise Notice in accordance with Section 2(b)
above, the aggregate Option Price (as well as any applicable withholding or other taxes) shall be paid by cash or check; provided,
however, that the Committee may consent to payment in any of the following forms, or a combination of them:


 


(a)     cash
or check;


 






    	 	Terms and Conditions - Page 1	 



     


    

 


(b)     a
“net exercise” under which the Company reduces the number of Shares issued upon exercise by the largest whole number
of Shares with a Fair Market Value that does not exceed the aggregate Option Price and any applicable withholding, or such other
consideration received by the Company under a cashless exercise program approved by the Company in connection with the Plan;


 


(c)     surrender
of other Shares owned by the Grantee that have a Fair Market Value on the date of surrender equal to the aggregate Option Price
of the exercised Shares and any applicable withholding; or


 


(d)     any
other consideration that the Committee deems appropriate and in compliance with applicable law.


 


4.     Restrictions
on Exercise. The Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of the Shares upon exercise or the method of payment of consideration for those Shares would constitute a violation
of any applicable law, regulation or Company policy.


 


5.     Non-Transferability
of Option. The Option may not be transferred in any manner other than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Grantee only by the Grantee; provided, however, that the Grantee may
transfer the Option (a) pursuant to a domestic relations order by a court of competent jurisdiction or (b) to any Family Member
of the Grantee in accordance with Section 17.9.2 of the Plan by delivering to the Company a notice of assignment in a form
acceptable to the Company. No transfer or assignment of the Option to or on behalf of a Family Member under this Section 5
shall be effective until the Company has acknowledged such transfer or assignment in writing.


 


6.     Term
of Option. The Option may be exercised only within the term set forth in the Notice of Grant, and may be exercised during
such term only in accordance with the Plan and the terms of the Award Agreement.


 


7.     Withholding.


 


(a)     The
Committee shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with
respect to any income recognized by the Grantee with respect to the Option.


 


(b)     The
Grantee shall be required to meet any applicable tax withholding obligation in accordance with the provisions of Section 17.3
of the Plan.


 


(c)     Subject
to any rules prescribed by the Committee, the Grantee shall have the right to elect to meet any withholding requirement (i) by
having withheld from the Option at the appropriate time that number of whole Shares whose Fair Market Value is equal to the amount
of any taxes required to be withheld with respect to the Option, (ii) by direct payment to the Company in cash of the amount of
any taxes required to be withheld with respect to the Option or (iii) by a combination of Shares and cash.


 


(d)     If
the Grantee makes any disposition of Shares delivered pursuant to the exercise of an Incentive Stock Option under the circumstances
described in Code Section 421(b) (relating to certain disqualifying dispositions), the Grantee shall notify the Company of such
disposition within 10 days of such disposition.


 


8.     Adjustment.
Upon any event described in Section 15.1 of the Plan occurring after the Grant Date, the adjustment provisions as provided
for under Section 15.1 of the Plan shall apply to the Option.


 






    	 	Terms and Conditions - Page 2	 



     


    

 


9.     Bound
by Plan and Committee Decisions. By accepting the Option, the Grantee acknowledges that the Grantee has received a copy of
the Plan, has had an opportunity to review the Plan, and agrees to be bound by all of the terms and conditions of the Plan. In
the event of any conflict between the provisions of the Award Agreement and the Plan, the provisions of the Plan shall control.
The authority to manage and control the operation and administration of the Award Agreement and the Plan shall be vested in the
Committee, and the Committee shall have all powers with respect to the Award Agreement as it has with respect to the Plan. Any
interpretation of the Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to the
Award Agreement or the Plan shall be final and binding on all persons.


 


10.   Grantee
Representations. The Grantee hereby represents to the Company that the Grantee has read and fully understands the provisions
of the Award Agreement and the Plan and that the Grantee’s decision to participate in the Plan is completely voluntary.
Further, the Grantee acknowledges that the Grantee is relying solely on his or her own advisors with respect to the tax consequences
of the Option.


 


11.   Regulatory
Limitations on Exercises. Notwithstanding the other provisions of the Award Agreement, the Committee may impose such conditions,
restrictions and limitations (including suspending the exercise of the Option and the tolling of any applicable exercise period
during such suspension) on the issuance of Common Stock with respect to the Option unless and until the Committee determines that
such issuance complies with (a) any applicable registration requirements under the Securities Act or the Committee has determined
that an exemption therefrom is available, (b) any applicable listing requirement of any stock exchange on which the Common Stock
is listed, (c) any applicable Company policy or administrative rules and (d) any other applicable provision of state, federal
or foreign law, including foreign securities laws where applicable.


 


12.   Miscellaneous.


 


(a)     Notices.
Any notice that either party hereto may be required or permitted to give to the other shall be in writing and may be delivered
personally, by intraoffice mail, by fax, by electronic mail or other electronic means, or via a postal service, postage prepaid,
to such electronic mail or postal address and directed to such person as the Company may notify the Grantee from time to time;
and to the Grantee at the Grantee’s electronic mail or postal address as shown on the records of the Company from time to
time, or at such other electronic mail or postal address as the Grantee, by notice to the Company, may designate in writing from
time to time.


 


(b)     Waiver.
The waiver by any party hereto of a breach of any provision of the Award Agreement shall not operate or be construed as a waiver
of any other or subsequent breach.


 


(c)      Entire
Agreement. The Award Agreement and the Plan constitute the entire agreement between the parties with respect to the Option.
Any prior agreements, commitments or negotiations concerning the Option are superseded.


 


(d)     Binding
Effect; Successors. The obligations and rights of the Company under the Award Agreement shall be binding upon and inure to
the benefit of the Company and any successor corporation or organization resulting from the merger, consolidation, sale, or other
reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets
and business of the Company. The obligations and rights of the Grantee under the Award Agreement shall be binding upon and inure
to the benefit of the Grantee and the beneficiaries, executors, administrators, heirs and successors of the Grantee.


 


(e)     Governing
Law; Consent to Jurisdiction; Consent to Venue. The Award Agreement shall be construed and interpreted in accordance with
the internal laws of the State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts
of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of Delaware.
For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by the
Option or the Award Agreement, the parties hereto hereby submit to and consent to the exclusive jurisdiction of the State of California
and agree that any related litigation shall be conducted solely in the courts of Orange County, California or the federal courts
for the United States for the Central District of California, where the Award Agreement is made and/or to be performed, and no
other courts.


 






    	 	Terms and Conditions - Page 3	 



     


    

 


(f)      Headings.
The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of the Award Agreement.


 


(g)     Amendment.
The Award Agreement may be amended at any time by the Committee, provided that no amendment may, without the consent of
the Grantee, materially impair the Grantee’s rights with respect to the Option.


 


(h)     Severability.
The invalidity or unenforceability of any provision of this Award Agreement shall not affect the validity or enforceability of
any other provision of this Award Agreement, and each other provision of this Award Agreement shall be severable and enforceable
to the extent permitted by law.


 


(i)      No
Rights to Service. Nothing contained in the Award Agreement shall be construed as giving the Grantee any right to be retained,
in any position, as a director, officer, employee, or consultant of the Company or its Affiliates, or shall interfere with or
restrict in any way the rights of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or
discharge the Grantee at any time for any reason whatsoever or for no reason, subject to the Company’s articles of incorporation,
bylaws and other similar governing documents and applicable law.


 


(j)      Section
409A. It is intended that the Award Agreement and the Option will be exempt from (or in the alternative will comply with)
Code Section 409A, and the Award Agreement shall be administered accordingly and interpreted and construed on a basis consistent
with such intent. This Section 12(j) shall not be construed as a guarantee of any particular tax effect for the Grantee’s
benefits under the Award Agreement and the Company does not guarantee that any such benefits will satisfy the provisions of Code
Section 409A or any other provision of the Code.


 


(j)       Further
Assurances. The Grantee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform
all additional documents, instruments and agreements that may be reasonably required by the Company or the Committee, as the case
may be, to implement the provisions and purposes of the Award Agreement and the Plan.


 


(k)     Confidentiality.
The Grantee agrees that the terms and conditions of the Option award reflected in the Award Agreement are strictly confidential
and, with the exception of the Grantee’s counsel, tax advisor, immediate family, or as required by applicable law, have
not and shall not be disclosed, discussed or revealed to any other persons, entities or organizations, whether within or outside
Company, without prior written approval of Company. The Grantee shall take all reasonable steps necessary to ensure that confidentiality
is maintained by any of the individuals or entities referenced above to whom disclosure is authorized.


 


 


Terms
and Conditions - Page 4