Document:

exv10w17w2

Exhibit 10.17.2

SECOND AMENDMENT TO MODIFIED INDUSTRIAL GROSS LEASE

     THIS SECOND AMENDMENT TO MODIFIED INDUSTRIAL GROSS LEASE (this “Second Amendment”) is made as
of June 26, 2009, by and between DOOLITTLE WILLIAMS, LLC, a California limited liability company
(“Landlord”), and ENERGY RECOVERY, INC., a Delaware corporation (“Tenant”).

RECITALS:

     A. Landlord and Tenant entered into that certain Modified Industrial Gross Lease dated as of
November 25, 2008 (the “Original Lease”), relating to certain premises described in the Lease.

     B. Landlord and Tenant subsequently entered into that certain First Amendment to Modified
Industrial Gross Lease dated as of May 28, 2009 (the “First Amendment”). The Original Lease as
amended by the First Amendment is referred to herein collectively as the “Lease”.

     C. Landlord and Tenant now desire to further amend the Lease to, among other things, add
additional space to the leased Premises, all as more fully set forth below.

     D. All capitalized terms used in this Second Amendment shall have the respective meanings
given to them in the Lease unless otherwise defined herein.

AGREEMENT:

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby amend the Lease on the terms hereof effective as of the date
hereof, notwithstanding anything to the contrary contained therein:

     1. Expansion of Warehouse Premises.

          (a) The increment of space in the Warehouse located at 2250 Williams Street, San Leandro,
California which is adjacent to the existing Warehouse Premises and which is labeled “Expansion
Space” on the attached Exhibit 2, consisting of approximately 45,000 rentable square feet, shall be
defined and referred to herein as the “Expansion Space” and shall be added to the Premises covered
by the Lease on the terms and conditions set forth herein. Landlord and Tenant agree that for the
purpose of the Lease, as amended by this Second Amendment, the Expansion Space shall be
conclusively deemed to contain 46,250 square feet.

          (b) As used herein, the “Expansion Commencement Date” shall mean the date on which Landlord
tenders possession of the Expansion Space to Tenant following the vacating of the Expansion Space
by the existing tenant, Portfolio Productions, Inc., a California corporation, dba Sitcom
(“Sitcom”) and otherwise in the condition required by this Second Amendment. Landlord estimates
that the Expansion Commencement Date will occur on August 1, 2009 (the “Estimated Expansion Date”);
provided, however, that if Landlord is unable to

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tender possession of the Expansion Space to Tenant in the condition required by Section l(d) of
this Second Amendment by the Estimated Expansion Date, then: (i) the validity of this Second
Amendment shall not be affected or impaired thereby; (ii) Landlord shall not be in default
hereunder or be liable for damages therefor; and (iii) Tenant shall accept possession of the
Expansion Space on the date when Landlord tenders possession thereof to Tenant in the condition
required by Section l(d) of this Second Amendment. The term of the lease of the Expansion Space
shall begin on the Expansion Commencement Date and shall be coterminous with the Term as defined in
Sections 1 and 3.02 of the Lease (i.e. ten (10) years from the Commencement Date, as that term is
defined in the Lease and amended by Section 7 below of this Second Amendment).

          (c) As of the Expansion Commencement Date, the definition of “Warehouse Premises” in the
Defined Terms of the Lease shall be modified to provide that the “Warehouse Premises” contains a
total of 63,750 rentable square feet consisting of the 17,500 rentable square feet in the
originally demised Warehouse Premises (referred to in this Second Amendment as the “Original
Warehouse Premises”) and the Expansion Space consisting of 46,250 rentable square feet; provided,
however, that in the event the Expansion Commencement Date should occur earlier than the
Commencement Date for the rest of the Premises, then the term “Warehouse Premises” as used in the
Lease as amended by this Second Amendment shall apply to the Expansion Space only prior to the
occurrence of the Commencement Date. The Expansion Space shall remain a portion of the “Warehouse
Premises” throughout the Term of the Lease (including any exercised Renewal Terms).

          (d) Tenant shall accept the Expansion Space in its “AS IS” state and condition and Landlord
shall have no obligation to make or pay for any improvements or renovations in or to the Expansion
Space or to otherwise prepare the Expansion Space for Tenant’s occupancy except that Landlord
shall, at Landlord’s sole cost and expense, prior to the Expansion Commencement Date, remove
Sitcom’s racks from the Expansion Space and repair any damage caused by the rack removal or the
vacating of the Expansion Space by Sitcom.

     2. Demising Wall; Alterations; Restoration; Letter of Credit; Permits.

          (a) All costs associated with the improvement and alteration of the Expansion Space
(collectively, the “Expansion Space Alterations”) shall be borne solely by Tenant. Such Expansion
Space Alterations expressly include (i) the installation of a demising wall (the “Demising Wall”)
to separate the Expansion Space from the remainder of the Warehouse that will remain occupied by
Sitcom (the “Sitcom Remainder Space”) and (ii) any required seismic upgrades of the Warehouse (the
“Seismic Upgrade Work”). All Expansion Space Alterations shall be performed in compliance with
the terms of Sections 8.02 and 7.05 of the Lease.

          (b) Tenant
shall engage Engineered Construction Services Corporation (“ECS”) as the
construction manager for the Expansion Space Alterations, including without limitation the
construction of the Demising Wall. Tenant shall obtain an estimate of ECS’s fees for the
construction management services to be provided in conjunction with the Expansion Space
Alterations, following which Tenant shall contract directly with ECS for such work.

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          (c) The Demising Wall shall be erected between the Expansion Space and the Sitcom Remainder
Space with minimal disruption to Sitcom’s use of and access to its premises, including minimizing
all dust and noise impacting the Sitcom Remainder Space. Further, Tenant shall provide appropriate
security for Sitcom’s warehouse inventory located in the Sitcom Remainder Space throughout the
process of construction of the Demising Wall. Provided that Tenant manages the process of
construction of the Demising Wall in a commercially reasonable manner, Tenant shall not be liable
to Sitcom or otherwise for payment of any claims asserted by Sitcom for business interruption
resulting from performance of any of the Expansion Space Alterations, including the Demising Wall
construction and the Seismic Upgrade Work.

          (d) Landlord acknowledges and agrees that Tenant shall be permitted to perform, subject to
compliance with Sections 8.02 and 7.05 of the Lease, the following alterations to the Expansion
Space as part of the Expansion Space Alterations:

               (i) increase the roof height of the Warehouse in a partial section over an area of the
Expansion Space that will house a large spray dryer;

               (ii) dig an open trench pit for an iso-static press;

               (iii) dig an approximately 150-foot trench, approximately 12-20 inches deep, for a kiln
transfer car system;

               (iv) build a heat-resistant room for kiln exhaust equipment;

               (v) modify the roof structure to accommodate HVAC systems;

               (vi) add additional gas capacity up to 36 million BTU per hour;

               (vii) upgrade the electrical system to accommodate multiple pieces of machinery;

               (viii) install a dust collection system;

               (ix) add a water tank/berm system (transferred to the Expansion Space from phase 1
construction in the original Warehouse Premises);

               (x) modify the plumbing system as required;

               (xi) perform concrete floor work as required;

               (xii) add bathroom and office space as needed to accommodate staff needs; and

               (xiii) perform such other work as may be required to adapt the Expansion
Space to Tenant’s industrial needs.

          (e) Consistent with the terms of Section 8.02 of the Lease, Tenant shall be obligated
to restore the Expansion Space to its original condition existing prior to performance of

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the Expansion Space Alterations, including removal of the concrete block portion of the Demising
Wall; provided, however, that Tenant’s obligations under Section 8.02 with respect to the Expansion
Space expressly exclude the obligations (i) to return the roof to its original height, (ii) to
remove or undo any Seismic Upgrade Work and (iii) to remove the parking corridor (as set forth in
Section 10.06) along the north wall (as shown on the attached Exhibit 2). Notwithstanding the
foregoing, Landlord shall have the option, by not less than twelve (12) months’ notice to Tenant,
to authorize Tenant to leave some or all of the Expansion Space Alterations in place upon surrender
of the Expansion Space at the end of the Term.

          (f) If, upon the date that is twelve (12) months before the expiration of the Term, Tenant’s
cash assets on hand as reported by its most recent Form 10Q, is less than Three Million Dollars
($3,000,000) or upon an uncured material financial default by Tenant (including without limitation
Tenant’s failure to pay rent when due following receipt of any applicable notice required by the
Lease), Landlord shall require Tenant to deliver to Landlord an irrevocable standby letter of
credit in an amount equal to $250,000.00 (the “Letter of Credit”) to secure Tenant’s obligations
to restore the Premises as required by Section 8.02 of the Lease and the foregoing Section 2(e) of
this Second Amendment, which Letter of Credit shall (1) be addressed to Landlord, (2) be in a form
reasonably satisfactory to Landlord (3) be issued by a federally insured financial institution
with minimum assets of Ten Billion Dollars ($10,000,000,000.00) (the “Minimum Assets”), upon which
presentment may be made in a local office of the financial institution, (4) allow for partial and
multiple draws thereunder, and (5) have an expiration date not earlier than thirty (30) days after
the scheduled Term expiration date (as the same may be extended) or in the alternative, have a
term of not less than one (1) year. In addition, the Letter of Credit shall provide that, in the
event of Landlord’s assignment of its interest in the Lease, the Letter of Credit shall be freely
transferable by Landlord to the assignee without charge to Landlord or approval of the issuer. The
Letter of Credit shall provide for same day or next business day payment to Landlord upon the
issuer’s receipt of a sight draft from Landlord together with Landlord’s certificate signed by two
officers or managers certifying that the requested sum is due and payable from Tenant and Tenant
has failed to pay, and with no other conditions.

          The Letter of Credit shall be replaced by a new Letter of Credit if the issuing financial
institution: (i) has assets which fall below the Minimum Assets; (ii) enters into any form of
regulatory or governmental proceeding, including without limitation any receivership instituted or
commenced by the Federal Deposit Insurance Corporation (the “FDIC”); (iii) is otherwise declared
insolvent, is downgraded by the FDIC, is determined to be less than well capitalized by the
appropriate Federal banking agency under the prompt corrective action rules of the FDIC, or closes
for any reason; or (iv) in any manner communicates (including without limitation communications
sent by or on behalf of the FDIC) its unwillingness to honor the terms of the Letter of Credit. If
Tenant fails to deliver to Landlord the replacement Letter of Credit within fifty (50) days
following Landlord’s written demand for same, Landlord shall be entitled to draw down the entire
Letter of Credit and, until Tenant delivers to Landlord the replacement Letter of Credit as
required by this paragraph, hold the drawn cash as a security deposit (which need not be
segregated from Landlord’s other funds and which shall not accrue interest for Tenant’s benefit,
in each case unless otherwise required by applicable law).

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          In the event that Tenant is in default under the terms and provisions of the Lease with
respect to Tenant’s restoration obligations, Landlord shall have the right, at any time after such
default, without giving any further notice to Tenant: (1) to make a partial draw upon said Letter
of Credit in an amount necessary to cure such default or (2) to draw down the entire amount of such
Letter of Credit at such time, and any such amounts received by Landlord shall be held by Landlord
(and need not be segregated or accrue interest unless otherwise required by applicable law) and
shall be applied in accordance with the terms of the Lease as amended hereby in the same manner as
a security deposit to cure Tenant’s default.

          To the extent that Landlord has not previously drawn upon the Letter of Credit, and to the
extent that Tenant is not otherwise in default of its restoration obligations under the Lease as
of the expiration date of the Lease, Landlord shall return the Letter of Credit to Tenant within
thirty (30) days following the expiration of the Term of the Lease.

          (g) Tenant shall be solely responsible to obtain all construction permits for the Expansion
Space Alterations and all use permits for Tenant’s operations in the Expansion Space as may be
required by the City of San Leandro or any other governmental agency with jurisdiction over the
Premises. Tenant’s submittal of its applications for any permits relating to the Expansion Space
Alterations shall be completely separate from the permit applications submitted or to be submitted
in conjunction with the phase I work being completed in the remainder of the Premises. In no event
shall the achievement of “Substantial Completion” of the phase I improvement work in the remainder
of the Premises or the determination of the Commencement Date for the Lease (including payment of
Rent) be delayed in any manner by virtue of the design or construction of the Expansion Space
Alterations.

     3. Permitted Uses. Tenant shall be permitted to use the Expansion Space for its business,
including the design, manufacture and assembly of ceramic and other parts for its products, subject
to the terms of the Lease as amended hereby.

     4. Base Rent. Section 1.01 item 12 of the Lease is hereby deleted and replaced with the
following:

“12. Base Rent: $0.75 per rentable square foot per month for the Building; $0.50
per rentable square foot per month for the Original Warehouse Premises; and $0.428
per rentable square foot for the Expansion Space.”

     5. Rent Escalations. Section 1.01 item 14 of the Lease is hereby deleted and replaced with
the following:

“14. Rent Escalations: The Base Rent for the Building and the Original
Warehouse Premises shall increase by 2.5% upon each anniversary of the Commencement
Date (as defined in Section 3.01); and the Base Rent for the Expansion Space shall
increase by 2.5% upon each anniversary of the Expansion Commencement Date (as
defined in the Second Amendment to the Lease).”

     6. Modification of Tenant’s Proportionate Share. Effective as of the
Commencement Date, Tenant’s Share of Warehouse Tax Expenses, Tenant’s Share of

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Warehouse Insurance Expenses and Tenant’s Share of Warehouse Operating Expenses as earlier set
forth in Section 1.01 of the Lease, items 17a, 19a, and 22, respectively, shall be 28.57%.

     7. Term. Section 3.01 of the Lease is deleted in its entirety and replaced with the
following:

“3.01 Commencement Date. The Term shall commence on the later to occur of the
following dates (the “Commencement Date”): (i) the date of Substantial Completion
(as defined in Exhibit D) of the Building and the Original Warehouse Premises (i.e.
the Premises excluding the Expansion Space), or (ii) the Scheduled Commencement
Date. Notwithstanding the foregoing, if the date of Substantial Completion of the
Premises, excluding the Expansion Space, should occur after December 1, 2009 through
no fault or delay of Landlord, the Commencement Date will be deemed to be December
1, 2009.”

     8. Base Rent. The first sentence of Section 4.01 of the Lease is hereby deleted and replaced
with the following:

“The Base Rent for each of the Building, the Original Warehouse Premises, and the
Expansion Space shall be as set forth in Section 1.01 and as confirmed in the
Commencement Date Memorandum signed by the parties. Effective as of the Expansion
Commencement Date, Tenant shall pay Base Rent for the Expansion Space ($0.428 per
rentable square foot per month, i.e. $19,795.000 per month). Effective as of the
Commencement Date, as that term is amended in the Second Amendment to the Lease,
Tenant shall pay Base Rent for the Building and the Original Warehouse Premises. If
the City of San Leandro authorizes Tenant to occupy the First Floor of the Building
prior to Substantial Completion of the remainder of the Building, Tenant shall pay
Base Rent for the square footage in the First Floor of the Building upon occupancy
thereof and Base Rent for the square footage in the Second Floor of the Building
upon the Commencement Date. Notwithstanding any early occupancy of the First Floor,
the Term for both the First Floor and Second Floor of the Building shall be
coterminous, i.e., ten (10) years from the Commencement Date.”

     9. Section 11.03. The first three sentences of Section 11.03 of the Lease are hereby deleted
and replaced with the following:

“11.03. Option to Terminate, (i) If the Building is damaged or destroyed to the
extent that Landlord determines in good faith that the Building cannot, with
reasonable diligence, be fully repaired or restored by Landlord within two hundred
seventy (270) days after the date of the damage or destruction, notwithstanding the
fact that the Expansion Space and/or the Original Warehouse Premises has not been
totally damaged or destroyed, the sole right of both Landlord and Tenant shall be
the option to terminate this Lease, (ii) If the Expansion Space or the Original
Warehouse Premises is damaged or destroyed to the extent that Landlord determines
in good faith that such space cannot, with reasonable diligence, be fully repaired
or restored by Landlord within two

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hundred ten (210) days after the date of the damage or destruction, notwithstanding
the fact that the Building has not been totally damaged or destroyed, the sole right
of Landlord shall be the option to terminate this Lease with respect to the
Expansion Space and/or the Original Warehouse Premises (as applicable) only.”

     10. Section 11.04. The first three sentences of Section 11.04 of the Lease are hereby deleted
and replaced with the following new sentences:

“11.04. Option to Terminate for Uninsured Casualty. In the event the Building is
damaged or destroyed and is not fully covered by the insurance proceeds received by
Landlord under the insurance policies required under Section 6.02, Landlord may
terminate this Lease by written notice to Tenant given within thirty (30) days
after the date of Landlord’s receipt of written notice from Landlord’s insurance
company that said damage or destruction is not so covered. In the event the
Expansion Space and/or the Original Warehouse Premises is damaged or destroyed and
is not fully covered by the insurance proceeds received by Landlord under the
insurance policies required under Section 6.02, Landlord may terminate this Lease
with respect to the Expansion Space and/or the Original Warehouse Premises only by
written notice to Tenant given within thirty (30) days after the date of Landlord’s
receipt of written notice from Landlord’s insurance company that said damage or
destruction is not so covered. If Landlord does not elect to terminate this Lease,
this Lease shall remain in full force and effect, and the Building and/or the
Expansion Space and/or the Original Warehouse Premises (as applicable) shall be
repaired and rebuilt in accordance with the provisions for repair set forth in
Section 11.01. If this Lease is terminated pursuant to this Section 11.04 with
respect to the Original Warehouse Premises only, or the Expansion Space only, then
after the date of such termination the Base Rent shall be reduced accordingly.”

     11. Section 12.02. Section 12.02 of the Lease is hereby deleted in its entirety and replaced
with the following:

“12.02. Partial Condemnation. If any portion of the Premises is Condemned, and such
partial condemnation renders the Premises unusable for Tenant’s business, or if a
substantial portion of the Building or the Expansion Space is Condemned, as
reasonably determined by Landlord, this Lease shall terminate as of the date of
title vesting in such proceeding and rent shall be adjusted to the date of
termination. If such partial condemnation does not render the Premises unusable for
the business of Tenant or less than a substantial portion of the Building or the
Expansion Space is Condemned, Landlord shall promptly restore the Premises to the
extent of any condemnation proceeds recovered by Landlord, less the portion thereof
lost in such condemnation, and this Lease shall continue in full force and effect
except that after the date of such title vesting, the Base Rent, Tenant’s Share of
Warehouse Tax Expenses, Tenant’s Share of Warehouse Insurance Expenses, and Tenant’s
Share of Warehouse Operating Expenses shall be adjusted as reasonably determined by
Landlord. Tenant hereby waives the

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provisions of California Code of Civil Procedure Section 1265.130 permitting a
court of law to terminate this Lease.”

     12. Section 16.12. Section 16.12 of the Lease is hereby deleted in its entirety and replaced
with the following:

“16.12 Surrender. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises to Landlord in the same condition as existed on the
date Tenant originally took possession thereof, reasonable wear and tear excepted.
Tenant shall not commit or allow any waste or damage to be committed on any portion
of the Premises or the Property. All property that Tenant is required to surrender
shall become Landlord’s property upon the termination of this Lease. If Tenant fails
to timely remove its personal property from the Premises, Landlord may keep and use
them or remove any of them and cause them to be stored or sold in accordance with
applicable law, all at Tenant’s sole cost and expense. All keys to the Premises or
any part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for a
joint inspection of the Premises at the time of vacating, but nothing contained
herein shall be construed as an extension of the Term or as a consent by Landlord to
any holding over by Tenant. In the event of Tenant’s failure to give such notice or
participate in such joint inspection, Landlord’s inspection at or after Tenant’s
vacating the Premises shall conclusively be deemed correct for purposes of
determining Tenant’s responsibility for repairs and restoration. Notwithstanding
anything to the contrary herein, as part of Tenant’s surrender obligations, Tenant
shall return the service corridor in the same condition as of the date hereof
(including if applicable, restoration of the wall separating the Building from the
Warehouse and installation of a carbon monoxide ventilation system equivalent to the
one located in the Building as of the date hereof), except that Tenant shall not be
required to relocate and or reinstall any rollup doors.)

     13. Commencement Date Memorandum. Exhibit C to the Lease is hereby deleted and replaced with
the amended Commencement Date Memorandum attached hereto as Exhibit 3.

     14. Exhibit D. Paragraph 2 of Exhibit D Work Letter of the Lease is hereby deleted and
replaced with the following:

“2. Landlord’s Work. Landlord at its expense shall perform the following work in the
Premises (collectively, the “Landlord’s Work”): (a) remove any tiles in the
Building’s stairwell that contain asbestos and that are identified by Tenant prior
to the Commencement Date; (b) level the floor slabs in the area identified on
Schedule 1 attached hereto between column lines N2-N5 and P2-P5; (c) replace the
staircase railings and restore adjacent walls; (d) replace the non-conforming
staircase in the front lobby to conform to Tenant design specifications, with the
understanding that Tenant will reimburse Landlord on demand for 50% of these
replacement costs; (e) remove all asbestos tiles from the north exit corridor of the

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Building; (f) transfer telephone switching equipment for tenants other than Tenant
to a location outside of the Premises; and (g) provide community access to main
electrical switch.”

     15. Parking. The first sentence of Section 10.06, as amended by the First Amendment, is hereby deleted and replaced with the following:

“Any monetary obligations imposed by the City of Leandro or other governmental
entity relative to parking rights with respect to the Premises shall be considered
as Tax Expenses and shall be paid by Tenant under Section 5 of the Lease.”

     16. Brokers. Landlord and Tenant each warrants that it has had no dealings with any broker or
agent in connection with the negotiation or execution of this Second Amendment other than Don
Jones Companies (representing Tenant), whose commission shall be paid by Landlord pursuant to a
separate agreement. Landlord and Tenant each agree to indemnify, defend and hold the other
harmless from and against any claims by any other broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with such party with regard to
this leasing transaction.

     17. Ratification. Except as modified by this Second Amendment, the Lease and all the terms,
covenants, conditions and agreements thereof are hereby in all respects ratified, confirmed and
approved.

     18. Full Force and Effect. This Second Amendment contains the entire understanding between
the parties with respect to the matters contained herein. Except as modified by this Second
Amendment, the Lease shall remain unchanged and shall continue in full force and effect. No
representations, warranties, covenants or agreements have been made concerning or affecting the
subject matter of this Second Amendment, except as are expressly contained herein and in the
Lease. This Second Amendment may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change or modification or discharge is
sought.

     19. Counterparts; Facsimile Transmission. This Second Amendment may be executed in any number
of identical counterparts each of which shall be deemed to be an original and all, when taken
together, shall constitute one and the same instrument. A facsimile or similar transmission of a
counterpart signed by a party hereto shall be regarded as signed by such party for purposes
hereof.

     20. Condition Precedent. This Second Amendment is expressly conditioned upon (i) receipt of
approval from Landlord’s lender, which Landlord shall promptly seek and (ii) termination of
Sitcom’s lease with respect to the Expansion Space (and relocation of a portion of their premises
to another portion of the Warehouse) on such terms and conditions as shall be determined by
Landlord in its sole discretion. Landlord shall advise Tenant if and when the foregoing conditions
precedent have been met, provided that if Landlord has not notified Tenant by close of business on
July 15, 2009 that these condition have been met, then this Second

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Amendment shall be null and void and of no force or effect, and the Lease shall continue as written
unaffected by the terms of this Second Amendment.

     IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Second Amendment as
of the date and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	LANDLORD:	 	 	 	DOOLITTLE WILLIAMS, LLC,	 	 
	 	 	 	 	 	 	a California limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	By:

Name:
	 	/s/ Terrence McGrath
 

Terrence M. McGrath
	 	 
	 

	 	 	 	 	 	Title:
	 	Managing Member	 	 
	 

	 	 	 	 	 	Date:
	 	June 26, 2009	 	 
	 
	 	 	TENANT:	 	 	 	ENERGY RECOVERY, INC.,	 	 
	 	 	 	 	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	By:

Name:
	 	/s/ Terril Sandlin
 

Terrill L. Sandlin
	 	 
	 

	 	 	 	 	 	Title:
	 	VP of Manufacturing	 	 
	 

	 	 	 	 	 	Date:
	 	June 26, 2009	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	By:

Name:
	 	/s/ Tom Willardson
 

Thomas Willardson
	 	 
	 

	 	 	 	 	 	Title:
	 	Chief Financial Officer	 	 
	 

	 	 	 	 	 	Date:
	 	June 29, 2009	 	 

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EXHIBIT 2

EXPANSION SPACE

Exhibit 2

 

 

EXHIBIT 3

COMMENCEMENT DATE MEMORANDUM

                    , 20___

                                        

                                        

                                        

                                        

	 	Re:	 	1717 Doolittle Drive / 2250 Williams Street Modified Industrial Gross Lease dated as of
November 21, 2008, as amended by First Amendment to Modified Industrial Gross Lease dated
as of May 28, 2009 and by Second Amendment to Modified Industrial Gross Lease dated as of
June 25, 2009 (collectively, the “Lease”) between DOOLITTLE WILLIAMS, LLC, a California
limited liability company (“Landlord”), and ENERGY RECOVERY, INC., a Delaware corporation
(“Tenant”). Capitalized terms used herein but not defined shall be given the meanings
assigned to them in the Lease.

Ladies and Gentlemen:

     1. Condition of Premises. Tenant has accepted possession of the Premises pursuant to the
Lease. Any improvements required by the terms of the Lease to be made by Landlord have been
completed to the full and complete satisfaction of Tenant in all respects except for the punchlist
items (if any) described on Schedule I hereto (the “Punchlist Items”), and except for such
Punchlist Items (if any), Landlord has fulfilled all of its duties under the Lease with respect to
such initial improvements. Furthermore, Tenant acknowledges that the Premises are suitable for the
Permitted Uses.

     2. Commencement Date. The Commencement Date of the Lease is                    , 2009.

     3. Expansion Commencement Date. The Expansion Commencement Date for the Expansion
Space is                     , 2009.

     4. Expiration Date. The Term is scheduled to expire on                    , 20___.

     5. Premises. The Building contains 106,250 rentable square feet. The Warehouse Premises
contain 63,750 rentable square feet consisting of (i) the 17,500 rentable square foot Original
Warehouse Premises and (ii) the 46,250 rentable square foot Expansion Space. Landlord and Tenant
stipulate that the square footage measurements set forth in the preceding sentence are conclusive
as to the square footage of the Building and the Warehouse Premises for purposes of determining
Base Rent and shall be binding upon them.

     6. Base Rent, (i) Base Rent for the Building and the Original Warehouse Premises shall be the
following amounts for the following periods of time:

	 	 	 
	Lease Year	 	Monthly Base Rent
	1
	 	$  88,438.00
	2
	 	$  90,648.00
	3
	 	$  92,915.00
	4
	 	$  95,238.00
	5
	 	$  97,618.00
	6
	 	$100,059.00
	7
	 	$102,560.00

 

 

	 	 	 
	Lease Year	 	Monthly Base Rent
	8
	 	$105,124.00
	9
	 	$107,753.00
	10
	 	$110,446.00

          (ii) Base Rent for the Expansion Space shall be the following amounts for the
following periods of time:

	 	 	 
	Lease Year	 	Monthly Base Rent
	1
	 	$19,795.00,
	2
	 	$20,290.00
	3
	 	$20,797.00
	4
	 	$21,317.00
	5
	 	$21,850.00
	6
	 	$22,396.00
	7
	 	$22,956.00
	8
	 	$23,530.00
	9
	 	$24,118.00
	10
	 	$24,721.00

     7. Contact Person. Tenant’s contact person in the Premises is:

Attention:

Telephone:

Facsimile:

Email:

     8. Ratification. Tenant hereby ratifies and confirms its obligations under the Lease, and
represents and warrants to Landlord that it has no defenses thereto. Additionally, Tenant further
confirms and ratifies that, as of the date hereof, (a) the Lease is and remains in good standing
and in full force and effect, and (b) Tenant has no claims, counterclaims, set-offs or defenses
against Landlord arising out of the Lease or in any way relating thereto or arising out of any
other transaction between Landlord and Tenant.

     9. Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full
effect and this Commencement Date Memorandum shall be binding upon Landlord and Tenant and their
respective successors and assigns. If any inconsistency exists or arises between the terms of this
Commencement Date Memorandum and the terms of the Lease, the terms of this Commencement Date
Memorandum shall prevail. This Commencement Date Memorandum shall be governed by the laws of the
State of California.

 

 

     Please indicate your agreement to the above matters by signing this letter in the space
indicated below and returning an executed original to us.

Sincerely,

DOOLITTLE WILLIAMS, LLC,

a California limited liability company,

By:

Name:

Title:

Agreed and accepted:

ENERGY RECOVERY, INC.,

a Delaware corporation

By:

Name:

Title:

 

 

SCHEDULE 1

PUNCHLIST ITEMSexv10w21

Exhibit 10.21

ENERGY RECOVERY, INC.

CHANGE IN CONTROL SEVERANCE PLAN

Article 1. Establishment, Term and Purpose

     1.1. Establishment and Term of the Plan. The Energy Recovery, Inc. Change in Control Severance
Plan (“Plan”) is designed to provide severance benefits to certain executives and other key
employees of the Company in the event that their employment is terminated without cause or for good
reason as a result of a change in control of the Company. The Plan will commence on August 4, 2009
(the “Effective Date”) and will end on December 31, 2010, unless extended as set forth below in
Article 5.

     1.2. ERISA. This Plan is intended to be (i) an employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), and (ii) an unfunded
plan maintained by the Company for a select group of management or highly compensated employees
within the meaning of Sections 201, 301, and 401 of ERISA, and any ambiguities herein shall be
interpreted consistent with such intentions.

Article 2. Definitions

As used in this Plan, the following capitalized terms will have the meanings set forth below:

(a) “Affiliate” means any company Controlled by, or under common Control with, the Company.
“Control” means the Company’s right to vote 50% or more of the outstanding shares of the voting
stock of the subject company.

(b) “Cause” means, in the context of employment termination:

(i) Participant’s performance of any act which, if Participant were prosecuted, would
constitute a felony or misdemeanor;

(ii) Participant’s failure to carry out his or her material duties;

(iii) Participant’s dishonesty towards or fraud upon the Company which is injurious to the
Company;

(iv) Participant’s violation of confidentiality obligations to the Company or
misappropriation of Company assets; or

(v) Participant’s death or disability, as defined in the Company long-term disability plan
in which the Participant participates or, if the Participant does not participate in such a
plan, the principal long-term disability plan that covers the Company’s senior-level
executives.

(c) “Change in Control” means:

(i) an acquisition of 50% or more of the outstanding common stock or voting securities of
the Company by an person or entity, other than the Company, a Company employee benefit plan
or a corporation controlled by the Company’s shareholders;

(ii) changes in the composition of the Company’s Board of Directors (the “Board”) over a
rolling twelve-month period, which changes result in less than a majority of the directors
consisting of Incumbent Directors. “Incumbent Directors” include directors who are or were
either

(x) members of the Board as of the Effective Date or

(y) elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination. Incumbent Directors do not include any individual not otherwise an
Incumbent Director whose election or nomination resulted from an actual or
threatened proxy contest (relating to the election of directors to the Board); or

(iii) consummation of a complete liquidation or dissolution of the Company, or a merger,
consolidation or sale of all or substantially all of the Company’s then existing assets
(collectively, a “Business Combination”), other than a Business Combination:

 

 

(x) in which the stockholders of the Company immediately prior to the Business
Combination receive 50% or more of the voting stock resulting from the Business
Combination,

(y) through which at least a majority of the members of the Board are Incumbent
Directors; and

(z) after which no individual, entity or group (excluding any corporation
resulting from the Business Combination or any employee benefit plan of such
corporation or of the Company) owns 50% or more of the stock of the corporation
resulting from the Business Combination who did not own such stock immediately
before the Business Combination.

(d) “Company” means Energy Recovery, Inc., a Delaware corporation.

(e) “Good Reason” means, the occurrence of any one or more of the following without the
Participant’s express written consent:

(i) the termination or material breach of this Plan by the Company;

(ii) the failure by the Company to have any successor, or any assignee of all or
substantially all of the Company’s assets, assume this Plan;

(iii) any material diminishment in Participant’s title, position, duties, responsibility or
status after the Change in Control, provided that reporting to a business unit head instead
of to the Chief Executive Officer will not constitute a material diminishment if the
Participant’s duties and responsibilities otherwise remain substantially the same;

(iv) any material reduction in, limitation of, or failure to pay or provide any,
compensation provided to the Participant under any agreement or understanding between the
Participant and the Company, or pursuant to the Company’s policies and past practices, as of
the date immediately prior to the Change in Control;

(v) any material reduction in the Participant’s base salary or target bonus opportunity from
the amounts in effect immediately prior to the Change in Control; or

(vi) any change in the Participant’s place of employment that increases Participant’s
commuting distance by more than 30 miles over his or her commuting distance immediately
prior to the Change in Control.

Good Reason will only be deemed to exist if the Participant provides notice of the condition(s)
constituting Good Reason within 45 days of the existence of the condition and gives the Company 45
days from its receipt of such notice to remedy the condition. If the condition is remedied, Good
Reason will not be deemed to exist.

(d) “Participant” means any full-time employee of the Company or an Affiliate whom the Compensation
Committee, in its sole discretion, makes a participant of the Plan. The Committee or its delegate
also may, from time to time and by written notice to the affected Participant(s), remove any
previously selected Participant(s) from continued participation in this Plan. Any removal of a
Participant will not be effective until 12 months after such notice is delivered to the
Participant.

Article 3. Change in Control Benefits

     3.1. Protected Termination. In the event that, within twelve months after a Change in
Control, Participant is terminated without Cause or terminates his or her employment voluntarily
with Good Reason, Participant will be entitled to the Severance Benefits defined below.

     3.2 Severance Benefits. Upon termination without Cause or with Good Reason within twelve
months after a Change in Control, Participant will receive all payments required by applicable
local law, including all earned and unpaid salary, any accrued and unused vacation pay and all
earned but unpaid and un-deferred bonus attributable to the year that ends immediately before the
year in which the Participant’s termination occurs, less deductions required or permitted by law.
Participants will also be entitled to receive the following additional benefits (“Severance
Benefits”) in exchange for an agreement to release all claims known or unknown against the Company
and for the restrictive covenants set forth in Article 8:

     (a) an additional payment equal to the sum of: (i) 12 months’ severance pay determined by
Participant’s regular base rate of pay for work for the Company and/or Affiliates in effect as of
the date of the employment

2

 

termination and (ii) 100% of Participant’s target annual bonus under the Company’s bonus
program (or any successor bonus program) for the fiscal year in which the Change in Control occurs,
less deductions required or permitted by applicable law (the “Additional Payment”);

     (b) immediate vesting of all unvested equity compensation held by the Participant as of the
date of termination; in the case of unvested equity compensation where the amount payable is based
on the satisfaction of performance criteria, the amount of unvested equity will be determined by
deeming all performance criteria satisfied at 100% of target, less deductions required or permitted
by applicable law; to the extent the equity compensation is subject to Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), the vesting acceleration of the equity compensation
shall not cause any distribution or payment under the equity compensation to be made before the
earliest date it may be made without violating Code section 409A.

     (c) if the Participant timely elects to continue Participant’s medical, dental, and vision
benefits under COBRA (including, if applicable, continuation of coverage for the Participant’s
spouse and dependents), then, contingent upon the Participant paying his or her share of the
monthly COBRA premium, the Company will pay its share of the monthly premium under COBRA to the
same extent it pays for coverage under the Company’s group plans for active employees and their
dependents, if applicable, for 12 months after the Participant’s termination, unless the
Participant becomes eligible for group medical, dental, and vision coverage through another
employer. Participant will have an obligation to notify the Company upon becoming eligible for
group medical, dental and vision benefits from another employer during the 12 month period. At the
end of any Company-paid period of COBRA coverage, the Participant may, at his own expense, continue
COBRA coverage for the remainder of the period for which the Participant is eligible. The
preceding provisions will be modified to the extent medical, dental, and vision benefits are not
provided through the purchase of insurance, but are provided by the Company on a self-insured
basis. In that case, the Participant will be required to initially pay the entire monthly premium,
but will be reimbursed each month an amount equal to the monthly amount (if any) that the Company
would pay (or would incur as its share of the cost) each month for an active employee with the same
coverage; and

     (d) payment by the Company for the reasonable costs of outplacement services for the
Participant during the six months following termination in an amount up to $10,000. No payment,
however, will be made in lieu of outplacement services.

     3.3 Form and Timing of Severance Benefits. Participant will receive the Additional Payment in
a single lump sum ten (10) days after the “Separation from Service” or ten (10) days after the
Company’s receipt of the signed unrevoked release agreement, whichever is later — unless
Participant is a “Specified Employee” and delayed payment is required to avoid a prohibited
distribution under Code section 409A(a)(2), or any successor thereto. The terms “Specified
Employee” and “Separation from Service” have the same meanings as those terms have in Code section
409A and related guidance. In the event payment must be delayed, it shall be made in accordance
with Section 9.2 hereof.

     3.4 Payment Obligation. Except as otherwise provided, Severance Benefits under the Plan will
not be reduced or affected by any offset, counterclaim, recoupment, defense or other right which
the Company may have against the Participant or anyone else. Company, however, reserves all rights
to pursue any and all causes of action that it otherwise might have against the Participant. In
addition, any violation by Participant of Article 8 will result in a cessation of the Company’s
obligation to provide Severance Benefits and will entitle the Company to seek repayment of any
payments previously made.

     3.5 Other Benefits. Participant will not be required to mitigate the amount of the Severance
Benefits by seeking alternative employment or other work. With the exception of COBRA payments,
the amount of the Severance Benefits will not be reduced by amounts earned by Participant as a
result of employment by another employer or other work after the date of termination. All
payments, benefits and amounts provided under this Plan will be in addition to and not in
substitution for any disability, workers’ compensation or other Company benefit plan distribution
that a Participant is entitled to at his or her date of termination. Notwithstanding the preceding
sentence or anything else contained herein to the contrary, a Participant’s Severance Benefits
under this Plan shall be reduced by the severance benefits that the Participant may be entitled to
under any applicable laws or any other plan, program, agreement or other arrangement with the
Company or an Affiliate, including, without limitation, any
such benefits provided for by an employment agreement.

3

 

     3.6 General Release. Any other provision of this Plan notwithstanding, Section 3.1 above will
not apply unless Participant has executed a general release in a form reasonably satisfactory to
the Company of all known and unknown claims that Participant may then have against the Company or
persons affiliated with the Company and has expressly agreed in writing not to prosecute any legal
action or other proceeding based on any of such claims. Such release must be signed and returned
within 45 days of the date of the Participant’s Qualifying Termination (as this term is hereinafter
defined) and remain unrevoked for any revocation required by applicable law.

     3.7 Employment Status. Unless otherwise provided in another written agreement between a
Participant and the Company or an Affiliate or by applicable law, the employment of the Participant
by the Company is “at will,” and, prior to the effective date of a Change in Control, may be
terminated by the Company or an Affiliate at any time, subject to applicable law. Participant’s
eligibility for Severance Benefits under this Plan does not affect the Company’s continuing right
to terminate Participant at any time or absent a Change in Control, subject to any limitations
imposed by contract or applicable law.

Article 4. Acceleration of Equity Vesting upon Change in Control.

     Notwithstanding any provisions to the contrary in this Plan and to the extent permitted under
the equity compensation plan of the Company under which the equity compensation was granted, if a
Change in Control occurs and a Participant’s equity compensation is not converted, assumed, or
replaced by a successor entity, then immediately prior to the Change in Control such equity
compensation shall become fully exercisable and vested and all forfeiture restrictions on such
equity compensation shall immediately lapse. In the case of equity compensation, the amount of
which is based on the satisfaction of performance criteria, all performance criteria will be deemed
satisfied at target.

Article 5. Term

     At the end of its current term, the Plan will be extended automatically for one additional
year, unless the Compensation Committee delivers written notice, at least six months prior to the
end of each such term, to each Participant that this Plan will not be extended (a “Non-Renewal
Notice”). If such notice is timely given, this Plan will terminate at the end of the term then in
progress. Notwithstanding the preceding sentences, however, this provision for automatic extension
will have no application following a Change in Control of the Company. In the event a Change in
Control occurs during the initial or any extended term, this Plan will remain in effect for the
longer of: 12 months beyond the month in which such Change in Control occurred; or (ii) until all
obligations of the Company hereunder have been fulfilled and until all benefits required hereunder
have been paid to Participants. For all purposes of this Plan, only one Change in Control will be
taken into account, i.e., if a Change in Control is followed by a second Change in Control during
the term of this Plan, the second Change in Control will be ignored for all purposes.

Article 8. Restrictive Covenants

     By accepting participation in this Plan and receiving the benefits provided for by Section 3.1
of this Plan, each Participant will be deemed to, and does, agree to each of the following
subsections:

     (a) Non-Compete and Non-Solicit. For one (1) year after any termination under the Plan that
gives rise to benefits under the Plan (a “Qualifying Termination”), Participant will not, directly
or indirectly, engage in or render any service of a business, commercial or professional nature to
any other person, entity or organization, whether for compensation or otherwise, that is in
competition with Company (or the employing Affiliate) anywhere in the world. In accordance with
this restriction, but without limiting its terms, Participant will not: (i) enter into or engage in
any business which competes with the business of Company (or Affiliate) ; (ii) solicit customers,
business, patronage or orders for, or sell, any products or services in competition with, or for
any business that competes with, the business of Company (or Affiliate); (iii) divert, entice, or
take away any customers, business, patronage or orders of Company (or Affiliate) or attempt to do
so; or (iv) promote or assist, financially or otherwise, any person, firm, association,
partnership, corporation or other entity engaged in any business which competes with the business
of Company (or Affiliate).

4

 

     (b) Scope of Restricted Activities. For the purposes of Section 8(a), but without
limitation thereof, Participant will be in violation thereof if Participant engages in any or all
of the activities set forth therein directly as an individual on Participant’s own account, or
indirectly as a stockholder, partner, joint venturer, participant, agent, salesperson, consultant,
officer and/or director of, or by virtue of the ownership by Participant’s spouse, child or parent
of any equity interest in, any firm, association, partnership, corporation or other entity engaging
in any or all of such activities; provided, however, Participant’s or Participant’s spouse’s,
child’s or parent’s ownership of less than 1% of the issued equity interest in any publicly traded
corporation will not alone constitute a violation of Article 8.

     (c) Scope of Covenants. Company and Participant acknowledge that the time, scope, geographic
area and other provisions of this section have been specifically negotiated by sophisticated
commercial parties and agree that they consider the restrictions and covenants contained in this
section to be reasonable and necessary for the protection of the interests of the Company, but if
any such restriction or covenant will be held by any court of competent jurisdiction to be void but
would be valid if deleted in part or reduced in application, such restriction or covenant will
apply with such deletion or modification as may be necessary to make it valid and enforceable. The
restrictions and covenants contained in each provision of this Article 8 will be construed as
separate and individual restrictions and covenants and will each be capable of being severed
without prejudice to the other restrictions and covenants or to the remaining provisions of this
Article 8. Without in any way limiting the remedies otherwise available to the Company for breach
of any provision of this Plan, the Company will be entitled to the repayment of Severance Benefits
paid to a Participant under this Plan for any violation of Article 8 by Participant.

     (d) No Solicitation/Interference. While employed by Company and until the one year
anniversary of any Qualifying Termination, Participant will not directly or indirectly, at any time
attempt to disrupt, damage, impair or interfere with the business of the Company or any Affiliate
by raiding any of Company’s or Affiliate’s employees or soliciting any of them to resign from their
employment by Company or Affiliate, or by disrupting the relationship between Company or any
Affiliate and any of their respective consultants, agents, representatives or vendors. Participant
acknowledges that this covenant is necessary to enable Company and Affiliates to maintain a stable
workforce and remain in business.

     (e) Non-Disparagement  While employed by the Company and until the one year
anniversary of such a Qualifying Termination, (i) the Participant shall not make or encourage or
induce others to make statements or representations that disparage or otherwise impair the
reputation, goodwill or commercial interests of the Company or its Affiliates or their officers,
directors, employees, shareholders, agents or products. The foregoing shall not be violated by
truthful statements in connection with required governmental testimony or filings, or judicial,
administrative or arbitral proceedings (including, without limitation, depositions or testimony in
connection with such proceedings).

Article 9. Excise Tax Limitation and Compliance with Section 409A

     9.1 Parachute Rules. This section applies to the extent that any or all of the Severance
Benefits provided for in this Plan, either alone or in conjunction with other compensatory
payments, would give rise to a “parachute payment” under Sections 280G and 4999 of the Code
(collectively, the “Parachute Rules”) and, if after taking into account any applicable federal,
state and local income taxes and the excise tax imposed by Section 4999 of the Code, the payment of
reduced Severance Benefits pursuant to the waiver described in the following sentence would result
in the receipt by the Participant, on an after-tax basis, of a greater payment than had the payment
of Severance Benefits not been reduced. The waiver described in this section is the Participant’s
waiving the parachute payment to the minimum extent necessary so that the remaining value of the
parachute payment equals one dollar less than the amount which would result in any compensatory
payments being subject to the excise tax imposed by Section 4999 of the Code, with the result that
the Participant receives only the amount of such payment which would not constitute an “excess
parachute payment” under the Parachute Rules. Reduction will occur in the following order:

     (i) cancellation of acceleration of vesting on any equity awards that are in the nature
of a right to exercise, such as options or stock appreciation rights;

5

 

     (ii) reduction in the benefits described in Section 3.2(c) and (d) (with such reduction
being
applied to the benefits in the manner having the least economic impact to the
Participant and, to the extent the economic impact is equivalent, such benefits will be
reduced in the reverse order of when the benefits would have been provided to the
Participant, that is, benefits payable later will be reduced before benefits payable
earlier);

     (iii) reduction of the Additional Payment;

     (iv) cancellation of acceleration of vesting of equity awards not covered under (i)
above; provided, however, that in the event that acceleration of vesting of equity award
compensation is to be canceled, such acceleration of vesting will be canceled in the reverse
order of the date of grant of such equity awards; that is, later equity awards will be
canceled before earlier equity awards.

Anything to the contrary in the foregoing notwithstanding, payments or benefits that constitute
nonqualified deferred compensation subject to Section 409A of the Code shall be reduced or
eliminated last in time. In no event will the Company or any Affiliate be required to gross up any
payment or benefit to the Participant to avoid the effects of the Parachute Rules or to pay any
regular or excise taxes arising from the application of the Parachute Rules. Unless the Company or
an Affiliate and the Participant otherwise agree in writing, any parachute payment calculation will
be made in writing by independent public accountants agreed to by the Company or an Affiliate and
the Participant, whose calculations will be conclusive and binding upon the Company or an Affiliate
and the Participant for all purposes. The Company or Affiliate and the Participant will furnish to
the accountants such information and documents as the accountants may reasonably request in order
to make a parachute payment determination.

     9.2 Compliance with 409A. No amount payable under this Plan that is non-qualified deferred
compensation subject to Section 409A of the Code, as determined in the Committee’s sole discretion,
will be paid unless the Participant experiences a “Separation from Service,” and, if the
Participant is a Specified Employee as of the date of the Separation from Service, such amount will
instead be paid or provided to the Executive on the earlier of the first business day after the
date that (i) is six months following the Participant’s Separation from Service or (ii) of the
Participant’s death, to the extent such delayed payment is required to avoid a prohibited
distribution under Section 409A(a)(2) of the Code, or any successor provision thereof. It is the
parties’ intention that the reimbursements, payments and benefits to which the Participant could
become entitled to under this Plan be exempt from or comply with Code Section 409A and the guidance
promulgated thereunder; provided, however, that the Company makes no representations that the
compensation or benefits provided under this Plan will be exempt from or comply with Code Section
409A . The provisions of this Section 9.2 will qualify and supersede all other provisions of this
Plan as necessary to fulfill the foregoing intention. If the Company believes, at any time, that
any of such reimbursement, payment or benefit is not exempt or does not so comply, the Company will
in good faith amend the terms of such arrangement such that it is exempt or complies (with the most
limited possible economic effect on the Participant and the Company) or to mitigate any additional
tax, interest and/or penalties that may apply under Section 409A if exemption or compliance is not
practicable.

Article 10. Claims Procedures

     10.1. Committee Review. Any Participant or beneficiary of a deceased Participant (such
Participant or beneficiary being referred to below as a “Claimant”) may deliver to the Committee a
written claim for a determination with respect to the amounts distributable to such Claimant from
this Plan. Such claim will be delivered to the Committee in care of the Company in accordance with
the notice provisions of Section 12.3. If such a claim relates to the contents of a notice received
by the Claimant, the claim must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 270 days of the date on which the event that caused
the claim to arise occurred. The claim must state with particularity the determination desired by
the Claimant.

     10.2. Notification of Decision. The Committee will consider a Claimant’s claim pursuant to
Section 10.1 within a reasonable time, but no later than 90 days after receiving the claim. If the
Committee determines that special circumstances require an extension of time for processing the
claim, written notice of the extension will be furnished to the Claimant prior to the termination
of the initial 90 day period. In no event will such extension exceed a period of 90 days from the
end of the initial period. The extension notice will indicate the special circumstances requiring
an extension of time and the date by which the Committee expects to render the benefit
determination. The Committee will notify the Claimant in writing: (a) that the Claimant’s
requested determination has been made, and

6

 

that the claim has been allowed in full; or (b) that
the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the
claim, or any part of it; (ii) specific reference(s) to pertinent provisions of this Plan upon
which such denial was based; (iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such material or
information is necessary; (iv) a statement that the Claimant is entitled to receive, upon request
and free of charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for
benefits; and (v) a statement of the Claimant’s right to seek arbitration pursuant to Section 10.3.

     10.3. Arbitration of Claims. A Claimant’s compliance with the foregoing provisions of this
Article 10 is a mandatory prerequisite to a Claimant’s right to commence arbitration pursuant to
this section with respect to any claim for benefits under this Plan. Any dispute, controversy or
claim arising hereunder or in any way related to this Plan, its interpretation, enforceability or
applicability that cannot be resolved by mutual agreement of the parties (the “arbitrable claims”)
will be submitted to binding arbitration. The parties agree that arbitration is the parties’ only
recourse for such claims and hereby waive the right to pursue such claims in any other forum,
unless otherwise provided by law. Any court action involving a dispute which is not subject to
arbitration will be stayed pending arbitration of arbitrable disputes. The arbitrator will have
the authority to issue provisional relief. The Participant and the Company further agree that each
has the right, pursuant to California Code of Civil Procedure section 1281.8, to apply to a court
for a provisional remedy in connection with an arbitrable dispute so as to prevent the arbitration
from being rendered ineffective. Any demand for arbitration will be in writing and must be
communicated to the other party prior to the expiration of the applicable statute of limitations.

The arbitration will be administered by JAMS pursuant to its Employment Arbitration Rules and
Procedures. The arbitration will be conducted in the San Francisco Bay area (unless the parties
mutually agree on another location) by a former or retired judge or attorney with at least 10 years
experience in employment-related disputes, or a non-attorney with like experience in the area of
dispute, who will have the power to hear motions, control discovery, conduct hearings and otherwise
do all that is necessary to resolve the matter. The parties must mutually agree on the arbitrator.
If the parties cannot agree on the arbitrator after their best efforts, an arbitrator will be
selected from JAMS pursuant to its Employment Arbitration Rules and Procedures. The Company will
pay the costs of the arbitrator’s fees. The arbitration will be decided upon a written decision of
the arbitrator stating the essential findings and conclusions upon which the award is based. The
arbitrator will have the authority to award damages, if any, to the extent that they are available
under applicable law(s). The arbitration award will be final and binding, and may be entered as a
judgment in any court having competent jurisdiction. Either party may seek review pursuant to
California Code of Civil Procedure section 1286, et seq. It is expressly understood that the
parties have chosen arbitration to avoid the burdens, costs and publicity of a court proceeding,
and the arbitrator is expected to handle all aspects of the matter, including discovery and any
hearings, in such a way as to minimize the expense, time, burden and publicity of the process,
while assuring a fair and just result. In particular, the parties expect that the arbitrator will
limit discovery by controlling the amount of discovery that may be taken (e.g., the number of
depositions or interrogatories) and by restricting the scope of discovery only to those matters
clearly relevant to the dispute. However, at a minimum, each party will be entitled to at least one
deposition and will have access to essential documents and witnesses as determined by the
arbitrator. The provisions of this Section will survive the expiration or termination of the Plan,
and will be binding upon the parties.

Article 11. Successors and Assignment

     The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) of all or substantially all of the business and/or assets of the
Company or of any division or subsidiary thereof (the business and/or assets of which constitute at
least 50% of the total business and/or assets of the Company) to expressly assume and agree to
perform the Company’s obligations under this Plan in the same manner and to the same extent that
the Company would be required to perform them if such succession had not taken place. This Plan
will inure to the benefit of and be enforceable by each Participant’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees, and
legatees. If a Participant dies while any amount would still be payable to him or her hereunder had
he or she continued to live, all such amounts, unless otherwise provided herein, will be paid to
the Participant’s beneficiary in accordance with the terms of this Plan.

7

 

Article 12. General

     12.1. Modification. Except as set forth below, no provision of this Plan may be modified,
waived, or discharged unless as to a Participant such modification, waiver, or discharge is agreed
to in writing and signed by each affected Participant and by an authorized member of the Committee
or its designee, or by the respective parties’ legal representatives and successors. The consent
requirement of the preceding sentence will not apply to the extent that (i) amendments provide
additional benefits to Participants or are required so that the plan complies with applicable law
(including Section 409A) or (ii) the amendment is not effective until one year after it is
communicated to all affected Participants.

     12.2. Notice of Termination. Any termination by the Company for Cause or by a Participant for
Good Reason will be communicated by a written notice which states the specific termination
provision in this Plan relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Participant’s employment under that provision.

     12.3 Notice. For purposes of this Plan, notices, including a Notice of Termination, and all
other communications provided for in this Plan will be in writing and will be deemed to have been
duly given when delivered or on the date stamped as received by the U.S. Postal Service for
delivery by certified or registered mail, postage prepaid and addressed: (i) if to the Participant,
to his or her latest address as reflected on the records of the Company, and (ii) if to the
Company: Energy Recovery Inc., 1908 Doolittle Drive, San Leandro, CA 94577, Attention: General
Counsel or to such other address as the Company may furnish to the Participant in writing with
specific reference to this Plan and the importance of the notice, except that notice of change of
address will be effective only upon receipt.

     12.4. Applicable Law. To the extent not preempted by the laws of the United States, the laws
of the State of California will be the controlling law in all matters relating to this Plan. Any
statutory reference in this Plan will also be deemed to refer to all applicable final rules and
final regulations promulgated under or with respect to the referenced statutory provision.

8

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