Note 10 – Commitments and Contingencies

Operating Leases

On October 15, 2024, a lease for our new laboratory space located in North Carolina commenced upon substantial completion of all improvements by the landlord. Pursuant to the terms of the lease, the Company reimbursed the landlord approximately $59,000 of these improvements. The term of the lease began September 1, 2024 and ends in sixty-one months or October 1, 2029 with one five-year extension period. The extension period was not included in our initial present value of the right-of-use asset or operating lease liability as it was not reasonably certain the option would be exercised.   Monthly rental payments required under the lease are subject to annual increases and range from $14,235 - $16,503 over the initial term of the lease.

Upon the lease commencing on October 15, 2024, the Company recognized an operating right-of-use asset and operating lease liabilities of approximately $726,000 for the present value of the lease payments required over the term of the lease, including the reimbursement for lessor improvements, using a weighted average incremental borrowing rate of 12%.

Right-of-use assets are summarized below:

Operating lease liabilities are summarized below:

Future payments required on the operating lease liabilities, over a remaining lease term of approximately 3.75 years, are as follows:

The following table summarizes the supplemental cash flow information for the years ended December 31, 2025 and 2024:

During the year ended December 31, 2025, we incurred rent expense of approximately $210,000 in connection with this operating lease which is included within general and administrative expenses on the consolidated statement of operations. During the year ended December 31, 2024, we incurred rent expense of approximately $63,000 in connection with this operating lease which is included within general and administrative expenses on the consolidated statement of operations.

License Agreement

The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, which was developed principally through the efforts of Messrs. Nagar and Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor. The SCWO technology is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “License Agreement”). Under the terms of the License Agreement, the Company is required to make royalty payments based on a percentage of licensed product sales, as defined in the License Agreement which is triggered by the sale of licensed products. Further, the Company is also required to pay royalties on a percentage of sublicensing fees. The Company will reimburse Duke for any ongoing patent expenses incurred. As of December 31, 2025 and 2024, the Company has not incurred any expenses in connection with this License Agreement. The Company may terminate the license agreement anytime by providing Duke 60 days’ written notice. 

Legal Matters

The Company may be involved in various legal proceedings arising in the ordinary course of business, including, but not limited to commercial disputes. The Company believes that such litigation, claims, and administrative proceedings will not have a material adverse impact on its financial position or its results of operations. The Company records a liability when it considers the loss probable, and the amount can be reasonably estimated. In addition, the below legal proceedings are in process or have been resolved.

On November 4, 2024, our former Chief Executive Officer and Chairman of the Board filed a complaint against the Company alleging unpaid wages and a bonus. At December 31, 2024, we established an accrual of $335,000 for this legal settlement as presented on the consolidated balance sheet. This legal matter was officially settled on April 2, 2025 for the amount accrued. We paid $110,000 of the settlement within ten calendar days of certain conditions being met by the plaintiff, as defined in the settlement agreement, with the remaining settlement being paid in equal payments through December 31, 2025. As of December 31, 2025, we have remitted all payments required on the settlement.

On March 18, 2026, a stockholder class action complaint was filed with Delaware Court of Chancery. The plaintiff seeks declaratory relief invalidating an exculpation provision contained in the Company’s amended and restated certification of incorporation filed with State of Delaware that purports to eliminate or limit the personal liability of the Company’s directors and officers beyond what is permitted under Delaware law. We believe this complaint has no merit and are consulting with our attorneys on the matter. At this time, the outcome of the litigation is uncertain.

Employment Agreements

Former CEO

On April 19, 2024, the Company entered into an employment agreement with Christian Gannon (the “Employment Agreement”), for Mr. Gannon to serve as President and Chief Executive Officer (“CEO”) of the Company effective April 22, 2024 (the “Start Date”). The Employment Agreement provided for an initial annual salary for Mr. Gannon of $450,000. Mr. Gannon is also eligible to earn an annual fiscal year performance bonus for each whole or partial fiscal year of his employment period with the Company; for the initial year under the Employment Agreement in accordance with certain milestones set forth by the Company, and thereafter as determined by the compensation Committee of the Company and the Board of Directors of the Company. Mr. Gannon was eligible to earn a performance bonus up to 125% of Mr. Gannon’s then-current base salary (the “Annual Bonus”) if certain milestones were met as defined in the Employment Agreement.

Under the Employment Agreement and subject to the terms of the Company’s 2021 Plan, Mr. Gannon was granted up to 225,000 Restricted Stock Units (as defined in the Plan) under the Plan, vesting as follows: (a) 25,000, on the first annual anniversary of the Start Date; (b) 75,000, in equal increments on the last day of every month thereafter over the following 36 months, subject to Mr. Gannon’s continued employment with the Company on each vesting date; and (c) 125,000, pursuant to certain performance related milestones set forth by the Company and defined in the Employment Agreement (collectively, the “Gannon Restricted Stock Units”). Additionally, pursuant to the Employment Agreement and the terms of the 2021 Plan, Mr. Gannon was granted 525,000 Options (as defined in the 2021 Plan) under the 2021 Plan vesting as follows: (a) 62,500, on the first annual anniversary of the Start Date; (b) 187,500, in equal installments on the last day of every month thereafter over the following 36 months subject to Mr. Gannon’s continued employment with the Company on each vesting date; and (c) 275,000, pursuant to certain performance related milestones set forth by the Company and defined in the Employment Agreement (collectively, the “Gannon Options”, and together with the Gannon Restricted Stock Units, the “Gannon Equity Awards”). See Note 8 for further disclosures on the vesting performance related milestones.

If the Employment Agreement is terminated by the Company without “Cause” or by Mr. Gannon for “Good Reason” (each as defined in the Employment Agreement, subject to the Company’s right to cure), he will be entitled to termination benefits, pursuant to which the Company will be obligated to (i) pay Mr. Gannon 100% of his then-current annual base salary in 12 equal installments; (ii) any earned but unpaid Annual Bonus; (iii) coverage to Mr. Gannon and his dependents under the Company’s then current medical, health, and vision insurance plans for 12 months; and (iv) if such separation occurs on or after the first anniversary of the Start Date, (x) a pro-rated Annual Bonus for the fiscal year in which the employment is terminated equal to the pro-rated Annual Bonus that Mr. Gannon would have received based on actual performance for such fiscal year if Mr. Gannon was employed by the Company, and (y) accelerated vesting with respect to the Gannon Equity Awards as if Mr. Gannon had remained employed by the Company through the first anniversary of the date of such separation. The termination benefits are subject to Mr. Gannon executing a separation and release agreement with the Company, within forty-five days of termination.

The Employment Agreement contains covenants for the benefit of the Company relating to the protection of the Company’s confidential information and standard Company indemnification obligations.

Mr. Gannon stepped down from his position as CEO effective October 7, 2025 and has not executed a separation and release agreement. Therefore, at December 31, 2025, we did not accrue for any of the termination benefits discussed above and Mr. Gannon stopped vesting in the Gannon Equity Awards upon the effective date of the separation.

Interim CEO

On October 7, 2025, the Company executed an employment agreement with Stephen Jones, interim CEO and President, for a period of the earlier of twelve months or the placement of a full-time CEO. While interim CEO, Mr. Jones received a $1 salary and 450,000 non-qualified stock options with an exercise price of $3.70 and the following vesting conditions: 25% date of grant, 25% 90 days after grant, 25% 180 days after grant, 25% 270 days after grant; or immediate vesting upon the following: (i) if termination of employment for any reason other than Cause (as defined in the 2021 374Water Equity Incentive Plan) (provided, however, this shall not apply in the event of a termination of employment made at the sole election of Mr. Jones); (ii) upon hiring of full-time CEO for 374Water and (iii) Change of Control of 374Water (as defined in the 2021 Equity Incentive Plan). The option immediately vested on February 23, 2026 when the Company hired a full-time CEO (see Note 13).

COO

On May 16, 2024 (the “Meyers Effective Date”), we entered into an employment agreement with Brad Meyers (the “COO Employment Agreement”), for Mr. Meyers to continue to serve as Chief Operating Officer (“COO”) of the Company, a position he has held since November 6, 2023. The COO Employment Agreement provides for an initial annual base salary for Mr. Meyers of $300,000. Mr. Meyers is also eligible to earn an annual fiscal year performance bonus with a target amount equal to 50% of Mr. Meyers’ then base-salary (the “Meyers Annual Bonus”).

Under the COO Employment Agreement and subject to the terms of the 2021 Plan , Mr. Meyers was granted 23,100 Restricted Stock (as defined in the 2021 Plan) and stock options for 23,100 (collectively, the “Meyers Equity Awards”), vesting as follows: (a) with respect to 11,550 Restricted Stock and 11,550 shares subject to stock options (“Options”), 25% vest on the first anniversary of the Effective Date, and the remaining 75% vest in equal increments on the last day of every month thereafter over the following 36 months, subject to Mr. Meyer’s continued employment with the Company on each vesting date: and (b) with respect to the remaining 11,550 Restricted Stock and 11,500 Options, each vest in accordance with a performance based milestone set forth by the Company and defined in the COO Employment Agreement. See Note 8 for further disclosures on the performance-related milestones.

If the COO Employment Agreement is terminated by the Company without “Cause” or by Mr. Meyers for “Good Reason” (each as defined in the COO Employment Agreement, subject to the Company’s right to cure), he will be entitled to termination benefits, pursuant to which the Company will be obligated to (i) pay Mr. Meyers six months of his then-current annual base salary in six equal installments; (ii) any earned but unpaid Meyers’ Annual Bonus; (iii) coverage to Mr. Meyers and his dependents under the Company’s then current medical, health, and vision insurance plans for six months; and (iv) if such separation occurs on the day or after the first year anniversary of employment of the Meyers Effective Date, (x) a pro-rated Annual Bonus for the fiscal year in which the employment is terminated equal to the pro-rated Annual Bonus that Mr. Meyers would have received based on actual performance for such fiscal year if Mr. Meyers was employed by the Company, and (y) accelerated vesting with respect to the Meyers Equity Awards as if Mr. Meyers had remained employed by the Company through the six-month anniversary of the date of such separation. The termination benefits are subject to Mr. Meyers executing a separation and release agreement with the Company, within forty-five days of termination.

The Employment Agreement contains covenants for the benefit of the Company relating to protection of the Company’s confidential information and standard Company indemnification obligations.

CFO

 On December 16, 2024 (the “Kline Effective Date”), we entered into an employment agreement with Russell Kline (the “CFO Employment Agreement”), for Mr. Kline to serve as Chief Financial Officer (“CFO”) of the Company. The CFO Employment Agreement provided for an initial annual base salary of $300,000. Mr. Kline was also eligible to earn an annual fiscal year performance bonus with a target amount equal to 50% of Mr. Klines’ then base-salary (the “Kline Annual Bonus”).

Under the CFO Employment Agreement and subject to the terms of the 2021 Plan, Mr. Kline was eligible for a grant of 61,728 Restricted Stock (as defined in the 2021 Plan) and stock options for 61,728 (collectively, the “Kline Equity Awards”), vesting as follows: (a) with respect to 30,864 Restricted Stock and 30,864 shares subject to stock options (“Options”), 25% vested on the first anniversary of the Effective Date, and the remaining 75% were to vest in equal increments on the last day of every month thereafter over the following 36 months, subject to Mr. Kline’s continued employment with the Company on each vesting date: and (b) with respect to the remaining 30,864 Restricted Stock and 30,864 Options, each vest in accordance with a performance based milestone set forth by the Company and defined in the CFO Employment Agreement. See Note 8 for further disclosures on the performance-related milestones.

If the CFO Employment Agreement is terminated by the Company without “Cause” or by Mr. Kline for “Good Reason” (each as defined in the CFO Employment Agreement, subject to the Company’s right to cure), he will be entitled to termination benefits, pursuant to which the Company will be obligated to (i) pay Mr. Kline six months of his then-current annual base salary in six equal installments; (ii) any earned but unpaid Kline Annual Bonus; (iii) coverage to Mr. Kline and his dependents under the Company’s then current medical, health, and vision insurance plans for six months; and (iv) if such separation occurs on the day or after the first year anniversary of employment of the Kline Effective Date, (x) a pro-rated Annual Bonus for the fiscal year in which the employment is terminated equal to the pro-rated Annual Bonus that Mr. Kline would have received based on actual performance for such fiscal year if Mr. Kline was employed by the Company, and (y) accelerated vesting with respect to the Kline Equity Awards as if Mr. Kline had remained employed by the Company through the six-month anniversary of the date of such separation. The termination benefits are subject to Mr. Kline executing a separation and release agreement with the Company within forty-five days of termination.

The Employment Agreement contains covenants for the benefit of the Company relating to protection of the Company’s confidential information and standard Company indemnification obligations.

Effective March 2, 2026, Mr. Kline was terminated without Cause from the Company.  We have not yet finalized a separation and release agreement with Mr. Kline .

Other Employee Matters

On October 8, 2025,  our General Counsel, Peter Mandel, stepped down from his position with the Company.  On October 20, 2025, the Company and Mr. Mandel entered into a Separation and Release of Claims Agreement (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Mandel will receive certain severance benefits in connection with his stepping down from the General Counsel role and will have a new consulting arrangement with the Company to continue providing strategic consulting services and transition support to the Company for a specified period, and in consideration of such benefits, Mr. Mandel agrees to release all claims against the Company and certain parties affiliated with the Company arising out of or related to Mr. Mandel’s employment with the Company by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter at any time up to and including October 20, 2025. The Separation Agreement became effective on October 28, 2025. At December 31, 2025, the Company has an accrual of approximately $89,000 for the severance wages remaining to be paid and an $80,000 bonus accrual that is owed to Mandel pursuant to the terms of the Separation Agreement. Mandel’s consulting agreement and services terminated on February 27, 2026.

Effective March 2, 2026, the Company’s Chief Administrative Officer (“CAO”) separated from the Company.  We have not yet finalized a separation and release agreement with the former CAO. However, the former CAO’s employment agreement included separation benefits of up to six months of the then-current annual base salary in six equal installments; coverage to the former CAO and any dependents under the Company’s then current medical, health, and vision insurance plans for six months; and accelerated vesting with respect to certain unvested equity awards at the time of separation.

We have yet to enter into separation and release agreements with our former CEO, CFO and CAO.  However, the Company could be contractually obligated to remit severance payments and provide for benefits coverage to the CEO for twelve months and CFO and CAO for six months. Further, certain unvested equity awards at time of separation could be subject to acceleration. Any contractual obligations will not be known and settled until separation and release agreements are finalized.