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. In

January 2026, the Company amended the Credit Agreement with JPMC to extend the termination date from December 21, 2026 to January

21,2031. See Note 13, "Subsequent Events," for further information. 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. As of December 31, 2025, the Company was in compliance with all covenants under the

Credit Agreement.

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, 2025, 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$20.4 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. These LCs had a weighted

average remaining life of approximately 19 months.

As of December 31, 2025 and 2024, the Company had $20.4 million and $15.7 million outstanding LCs and SBLCs issued by the

Company to its customers related to 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.

Sublease

On March 10, 2025, the Company entered into an agreement to sublease its Katy, Texas operating lease. The sublease commenced

on March 10, 2025 and will expire on December 31, 2029. The sublease is classified as an operating lease and has a remaining lease term

of 4.0 years as of December 31, 2025. Sublease income was immaterial during theyear ended December 31, 2025 and is recorded as a

reduction of lease expense in general and administrative within the Company’s Consolidated Statements of Operations.

The Company considered the sublease to be an indicator of impairment of the original lease. The Company compared the

undiscounted cash flows from the sublease to the carrying value of the Katy, Texas operating lease, which included the associated right-of-

use asset and leasehold improvements. The Company concluded that the carrying value was not recoverable as it exceeded the estimated

undiscounted cash flows.

The Company calculated the impairment charge by comparing the carrying value of the Katy, Texas operating lease to its fair value,

which was calculated based on the net discounted cash flows associated with the sublease. The Company recorded a total impairment

charge of$0.4 million during theyear ended December 31, 2025, of which$0.2 million and$0.2 million was recorded against the right-of-use

asset and the associated leasehold improvements, respectively. The allocation of the impairment charge was based on the relative carrying

value of the assets. The impairment charge was recorded in general and administrative within the Company’s Consolidated Statements of

Operations.

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, 2025.

As of December 31, 2025, 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.

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, 2025 and 2024.