Energy Recovery Inc

Note 6 —Lines of Credit

Credit Agreement

The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMC”) on December 22, 2021 (“Credit

Agreement”). The Credit Agreement, which will expire on December 21, 2026, provides a committed revolving credit line of$50.0 million.

The Credit Agreement requires the Company to comply with various covenants, including among other things, financial covenants to

1. maintain a leverage ratio of consolidated net debt to adjusted earnings before income taxes, depreciation and amortization (“adjusted

EBITDA”), not to exceed 3.0 to 1; and 2) limit annual capital expenditures. The Credit Agreement allows the Company to, among other

things, make distributions to shareholders, repurchase its stock, incur other debt or liens, or acquire or dispose of assets provided that the

Company complies with certain requirements and limitations set forth in the Credit Agreement. The unused portion of the credit line is

subject to a fee equal to 0.20% per annum multiplied by the amount of such unused portion.

On July 15, 2022, the Company and JPMC agreed to a modification of the Credit Agreement (“First Amendment”) to change the

indicated reference rate from the London Interbank Offered Rate (also referred to as “LIBOR”) to the Secured Overnight Financing Rate (also

referred to as “SOFR”). Changes in the Credit Agreement reference rate to SOFR did not materially change the provisions defined in the

original Credit Agreement nor did this change materially affect the Company’s financial statements. During September 2023, the Company

and JPMC amended the Credit Agreement (the “Second Amendment”) to only increase the maximum allowable letters of credit (“LCs”) credit

line component from$25.0 million to$30.0 million. No other components or features under the Credit Agreement (including the First

Amendment dated July 15, 2022) were amended.

Revolving Loans

Revolving loans under the Credit Agreement may be in the form of 1) a base rate loan that bears interest equal to (a) the greater of

the Wall Street Journal prime rate and (b) the sum of (i) one-month reserve adjusted SOFR and (ii)2.50%, plus an applicable margin of

0.25% or 0.50%, subject to the Company’s total leverage ratio, or 2) a Eurodollar loan that bears interest equal to the sum of the reserved

adjusted SOFR rate for an interest period elected by the Company, plus an applicable margin of 1.25% or 1.50%, based upon the Company’s

total leverage ratio. The Company may request loans up to the lower of a maximum exposure of$50.0 million or the amounts of unused

credit under the Credit Agreement. The unused portion of the credit facility is subject to a facility fee in an amount equal to 0.20% per annum

of the average unused portion of the revolving line. At the election of the lender following an event of default, the loans shall bear the

aforementioned interest rate plus an additional 2%. As of December 31, 2024, there wereno revolving loans outstanding under the Credit

Agreement.

Letters of Credit

Under the Credit Agreement, the Company is allowed to request LCs up to the lower of a maximum exposure of$30.0 million or the

amounts of unused credit under the Credit Agreement. The Credit Agreement does not require any cash collateral when LCs are issued;

however, at the election of the lender following a default, the lender may require the Company to deposit cash in an amount equal to 103% of

the LCs exposure. LCs are subject to customary fees and expenses for issuance or renewal, and all disbursements are subject to the same

interest rate provision as noted directly above under Revolving Loans. LCs are limited to a term ofone year, unless extended. Under the

LCs component, the Company utilized$18.4 million of the maximum allowable credit line of$30.0 million, which includes newly issued LCs,

and previously issued and unexpired stand-by letters of credits (“SBLCs”) and certain non-expired commitments under the Company’s

previous Loan and Pledge Agreement with Citibank, N.A. which are guaranteed under the Credit Agreement.

The following table presents the total outstanding LCs and SBLCs issued by the Company to its customers related toproduct

warranty and performance guarantees. See Note 7, “Commitments and Contingencies – Guarantees,” for further discussion on product

warranty and performance guarantees.

Note 7 —Commitments and Contingencies

Operating Lease Obligations

The Company leases office, warehouse and manufacturing facilities under operating leases in San Leandro, CA, Tracy, CA and Katy,

TX that expire on various dates through fiscal year 2030. The following table presents a summary of operating lease, right of use assets and

lease liabilities.

The following table presents certain facts regarding the Company’s material property leases.

(1)Month-Year of original lease expiration.

(2)Number of renewal option(s) / Number of year(s) per renewal option.

The following table presents operating lease activities related to all leased properties.

The following table presents other information related to outstanding operating leases as of December 31, 2024.

As of December 31, 2024, the following table presents the minimum lease payments by year under noncancelable operating leases,

exclusive of execution costs.

Warranty

The following table presents the changes in the Company’s accrued product warranty reserve.

Purchase Obligations

The Company haspurchase order arrangements with itsvendors for which the Company hasnot received the related goods or

services as of December 31, 2024. These arrangements are subject to change based on the Company’ssales demand forecasts. The

Company hasthe right to cancel the arrangements prior to the date of delivery. The purchase order arrangements are related to various raw

materials and component parts, as well as capital equipment. As of December 31, 2024, the Company had approximately$1.7 million of

such open cancellable purchase order arrangements.

Guarantees

The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business,

typically with its customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses

suffered or incurred by the indemnified party as a result of the Company’s activities, generally limited to personal injury and property damage

caused by the Company’s employees at a customer’s plant, and in proportion to the employee’s percentage of fault for the accident.

Damages incurred for these indemnifications would be covered by the Company’s general liability insurance to the extent provided by the

policy limitations. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification

agreements. As a result, the estimated valuation of the potential liability arising from these agreements is not material. Accordingly, the

Company recorded no liabilities for these agreements as of December 31, 2024 and 2023.