SCHEDULE: 374Water Insiders Boost Stake, Seek Board Changes & New Funding

A group of beneficial owners in 374Water Inc. increased their collective stake to 26.9%, advocating for board vacancies to be filled and exploring alternative financing methods.

Summary

• This Amendment No. 2 to Schedule 13D was filed by a group of beneficial owners of 374Water Inc., adding eight new reporting persons.
• The group's aggregate beneficial ownership now stands at 4,630,343 shares, representing approximately 26.9% of the Issuer's outstanding common stock.
• All share figures reported reflect a 1-for-10 reverse stock split that became effective on December 26, 2025.
• The reporting persons intend to support identifying qualified candidates to fill existing Board vacancies.
• They believe the Issuer would benefit from capital sources other than the recent at-the-market sales agreement entered into on December 23, 2025.
• The group is actively exploring alternative financing options, including equity, debt, convertible securities, or other structured arrangements.
• Stephen H. McKnight purchased 3,153 shares in an open market transaction on December 29, 2025, at a price of $1.79 per share (post-split).

Sentiment

Score: 6

Explanation: The filing indicates a significant group of shareholders is taking an active role, which can be positive for oversight and strategic direction. However, the explicit criticism of current capital raising methods and the mention of board vacancies introduce an element of potential internal conflict or strategic disagreement, creating uncertainty.

Positives

• Increased beneficial ownership by a significant group of individuals and entities, signaling a strong commitment to the company's long-term value.
• The reporting persons are actively seeking to improve corporate governance by identifying candidates for existing Board vacancies.
• Exploration of alternative financing methods could lead to more favorable capital structures and reduce reliance on potentially dilutive at-the-market sales.

Negatives

• The reporting persons explicitly criticize the Issuer's recent capital raising strategy, specifically the at-the-market sales agreement.
• The mention of "existing Board vacancies" suggests potential governance gaps or instability within the company's leadership.
• The group's actions indicate a potential disagreement with current management's strategic direction, particularly concerning capital allocation.

Risks

• No definitive agreements have been reached regarding alternative financing, and there is no assurance that any such transaction will be consummated.
• Potential for conflict or disagreement between the reporting persons and the current board/management regarding strategic direction and capital allocation.
• The need to fill "existing Board vacancies" could indicate underlying governance challenges or a lack of full board functionality.

Future Outlook

The reporting persons are exploring alternative forms of financing, including equity, debt, or convertible securities, to fund the Issuer's business and operations, believing these will better serve shareholder interests than recent at-the-market sales. They also intend to support the identification of qualified candidates to fill existing Board vacancies.

Management Comments

• "The Reporting Persons believe that the Issuer would benefit from sources of capital other than the recent transactions pursued by the Issuer, such as the at-the-market sales agreement entered into on December 23, 2025."
• "The Reporting Persons are exploring alternative forms of financing that the Reporting Persons believe will better serve the interests of the Issuer and its shareholders as a source of capital to fund the Issuer's business and operations."
• "Each of the Reporting Persons... have expressed their interest in supporting Messrs. Nagar, Davis, and McKnight in identifying qualified candidates to fill the existing Board vacancies."

Industry Context

This filing indicates a significant shareholder group is taking a more active role in 374Water Inc.'s strategic direction and corporate governance. Such activism often arises when shareholders perceive a disconnect between current management's strategy and shareholder value creation, particularly concerning capital allocation and board composition. This dynamic is common in smaller public companies where a concentrated ownership group can exert influence.

Comparison to Industry Standards

• The collective beneficial ownership of 26.9% by a group of individuals and trusts represents a substantial stake, indicating a highly concentrated ownership structure, which is not uncommon in smaller-cap companies.
• The explicit criticism of the company's at-the-market (ATM) sales agreement suggests a divergence from what this group considers optimal capital raising practices, which often prioritize minimizing dilution and securing more favorable terms compared to typical industry benchmarks.
• The call for filling board vacancies and exploring alternative financing aligns with common shareholder activist strategies aimed at improving corporate governance and financial performance, similar to actions seen in other companies facing strategic challenges or perceived undervaluation.

Corporate Governance

Related Party Transactions

• Mr. McKnight Jr. acquired shares as a gift from Mr. McKnight (Stephen H. McKnight Sr.).
• Richard H. Davis's beneficial ownership includes shares held by his spouse and Darby Shore Management Inc., where he is an officer, director, and 25% shareholder.
• Stephen H. McKnight's beneficial ownership includes shares held by the Stephen H. McKnight Revocable Trust, of which he is the sole trustee.
• William R. Greenfield's beneficial ownership includes shares held by the Greenfield Irrevocable Family Trust, where his wife is the sole trustee and beneficiary.
• John McClure's beneficial ownership includes shares held by the Georgia Marie McClure Revocable Trust, of which he is the sole trustee.
• Jennifer P. Ligeti, Manager of the General Partner of Ligi Investments LLLP, has voting and investment power over the shares owned thereby.

Stakeholder Impact

• **Shareholders**: Potential for enhanced shareholder value if alternative financing strategies are more favorable and board composition improves. Risk of uncertainty or conflict if disagreements with current management escalate.
• **Management/Board**: Increased scrutiny and potential pressure from a significant shareholder group regarding strategic decisions, particularly capital raising and board appointments.
• **Creditors/Investors**: Potential for new capital structures (debt/equity) could alter the company's financial risk profile.

Next Steps

• Identify qualified candidates to fill existing Board vacancies.
• Engage in discussions with the Issuer's board of directors and management.
• Explore and potentially pursue alternative forms of financing.
• Take actions deemed appropriate to protect or enhance the value of their respective investments.

Key Dates

Recommendation

The filing indicates a significant and growing activist stake in 374Water Inc., with the reporting persons now controlling 26.9% of the outstanding shares. Their stated intent to influence board composition and explore alternative financing strategies suggests potential for positive changes in corporate governance and capital allocation, which could unlock shareholder value. However, the explicit criticism of the company's current at-the-market sales agreement and the implied strategic divergence introduce an element of uncertainty and potential conflict. While the long-term outlook could improve with effective shareholder engagement, the immediate future may involve strategic disagreements. Therefore, a "hold" recommendation is appropriate, advising investors to monitor the developments regarding board appointments and financing strategies before making further investment decisions.

Keywords

374Water Inc, Schedule 13D, Beneficial Ownership, Shareholder Activism, Corporate Governance, Reverse Stock Split, Capital Raise, Equity Investment, Board Vacancies, Investment Strategy