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<SEC-DOCUMENT>0001125282-03-002275.txt : 20030317
<SEC-HEADER>0001125282-03-002275.hdr.sgml : 20030317
<ACCEPTANCE-DATETIME>20030317151721
ACCESSION NUMBER:		0001125282-03-002275
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030317

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			FUEL TECH N V
		CENTRAL INDEX KEY:			0000846913
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21724
		FILM NUMBER:		03605855

	BUSINESS ADDRESS:	
		STREET 1:		CASTORWEG 22-24
		CITY:			CURACAO NETHERLANDS
		STATE:			P7

	MAIL ADDRESS:	
		STREET 1:		C/O FUEL TECH INC
		STREET 2:		300 ATLANTIC ST
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06901
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b323572_10k.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For the fiscal year ended: December 31, 2002
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from_________________to_______________

                          Commission File No. 000-21724

                                 FUEL-TECH N.V.
             (Exact name of registrant as specified in its charter)


      Netherlands Antilles                                  N/A
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation of organization)

        Fuel-Tech N.V.                        Fuel Tech, Inc.
        (Registrant)                   (U.S. Operating Subsidiary)
       Castorweg 22-24                 Suite 703, 300 Atlantic Street
 Curacao, Netherlands Antilles               Stamford, CT 06901
      (599) 9-461-3754                         (203) 425-9830

          (Address and telephone number of principal executive offices)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

 Common Stock $0.01 par value per share      The Nasdaq Stock Market, Inc.
 --------------------------------------      -----------------------------
              (Title of Class)            (Name of Exchange on Which Registered)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes  X    No
                                                ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   X
                              ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 under the Securities Exchange Act of 1934). Yes X   No
                                                                     ---    ---

The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asked prices of June 28, 2002 was
$95,271,000. The aggregate market value of the voting stock held by
non-affiliates of the registrant based on the average bid and asked prices of
March 3, 2003 was $52,005,000

Indicate number of shares outstanding of each of the registered classes of
Common Stock at March 3, 2003: 19,680,432 shares of Common Stock, $0.01 par
value.

                      Documents incorporated by reference:

Certain portions of the Proxy Statement for the annual meeting of stockholders
to be held in 2003 are incorporated by reference in Parts II, III, and IV
hereof.




<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                   Page
                                                                                                   ----
<S>        <C>                                                                                     <C>
                                     PART I

Item 1.    Business                                                                                    1
Item 2.    Description of Property                                                                     5
Item 3.    Legal Proceedings                                                                           5
Item 4.    Submission of Matters to Vote of Security Holders                                           5


                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters                       6
Item 6.    Selected Financial Data                                                                     8
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations       9
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk                                 14
Item 8.    Financial Statements and Supplementary Data                                                15
Item 9.    Changes in and Disagreements with Accountants and Financial Disclosure                     32


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                                         32
Item 11.   Executive Compensation                                                                     32
Item 12.   Security Ownership of Certain Beneficial Owners
                and Management                                                                        32
Item 13.   Certain Relationships and Related Transactions                                             32


                                     PART IV

Item 14.   Controls and Procedures                                                                    33

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K                            33

Signatures and Certifications                                                                         35
</TABLE>

                                       ii
<PAGE>



                             TABLE OF DEFINED TERMS


Term                        Definition

ABC                  American Bailey Corporation

AES                  Advanced Engineering Services

CAAA                 Clean Air Act Amendments of 1990

CDT                  Clean Diesel Technologies, Inc.

CFD                  Computational Fluid Dynamics

Common Shares        Shares of the common stock of Fuel Tech

EPRI                 Electric Power Research Institute

FTI                  Fuel Tech, Inc.

FUEL CHEM(R)         FTI's fuel and flue gas treatment processes, including its
                     Targeted-In-Furnace-Injection programs for slagging,
                     fouling and corrosion control and plume abatement

Fuel Tech            Fuel-Tech N.V. and its subsidiaries and affiliates

Investors            The purchasers of Fuel Tech securities pursuant to a
                     Securities Purchase Agreement as of March 23, 1998

Loan Notes           Nil Coupon Non-redeemable Convertible Unsecured Loan Notes
                     of Fuel Tech

NOx                  Oxides of nitrogen

NOxOUT CASCADE(R)    Combination of NOxOUT and SCR

NOxOUT(R) Process    Fuel Tech's SNCR process for the reduction of NOx

NOxOUT SCR(R)        Urea used as a catalyst reagent

Rich Reagent         An SNCR-type process that broadens the NOx reduction
Injection            capability of the NOxOUT Process at a cost similar to
Technology (RRI)     NOxOUT. RRI can also be applied on a stand-alone basis.

SCR                  Selective Catalytic Reduction

SIP Call             State Implementation Plan Rulemaking Procedure

SNCR                 Selective Non-Catalytic Reduction

NOxOUT ULTRA(R)      Fuel Tech's process for generating ammonia for use
                     as SCR reagent

ACUITIV(TM)          Fuel Tech's advanced visualization services, formerly
                     referred to as Virtual Vantage

                                      iii
<PAGE>

                   Fuel-Tech N.V. Subsidiaries and Affiliates
                               December 31, 2002

<TABLE>
<S>                      <C>            <C>                <C>                     <C>                      <C>

                                                           ------------
                                                               FTNV
                                           ---------------- Netherlands ----------------------------------------
                                           |                  Antiles                   |                       |
                                           |49%            ------------                 |100%                   |15%
                                           |                    |                       |                       |
                                      ----------                | 100%              ----------               ----------
                                        FTCS                    |                      PPI                      CDT
                                       Germany            -------------              Delaware                 Delaware
                                      ----------               FTI                  ----------               ----------
                                                          Massachusetts
                                                          -------------
                                                                |
                                                                | 100%
                             100%            100%               |                        100%
                             ------------------------------------------------------------
                             |              |                   |                       |
                             |              |                   |                       |
                         ---------      ---------          -----------               ---------
                           FTJL           FTL              HOLDINGS
                         Jamaica         Canada            Netherlands               Srl Italy
                                                            Antilles
                         ---------      ---------          -----------               ---------
                                                                |
                                                                | 100%
                                                                |
- ---------------------------------------------------------  -----------
FTNV      - Fuel-Tech N.V.
FTI       - Fuel Tech, Inc.
Holdings  - Fuel Tech Holdings N.V.                             BV
BV        - Fuel Tech BV                                   Netherlands
GmbH      - Fuel Tech GmbH
HFTL      - Fuel Tech Targeted Injection Chemicals Ltd.    -----------
FTJL      - Fuel Tech Jamaica Limited                            |
Srl       - Fuel Tech Srl                                        | 100%
PPI       - Platinum Plus, Inc.                                  |____
CDT       - Clean Diesel Technologies, Inc.                           |
FTCS      - Fuel Tech CS GmbH                                     ---------

                                                                    GmbH
                                                                   Germany

                                                                  ---------


</TABLE>


                                       iv

<PAGE>


                                     PART I

 Forward Looking Statements

     Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in Fuel Tech's filings with the Securities and Exchange
Commission. See "Risk Factors of the Business" in Item 1 and also Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

 ITEM 1. BUSINESS

 Fuel Tech

     Fuel-Tech N.V., including its subsidiaries ("Fuel Tech"), is a technology
company active in the air pollution control and specialty chemical businesses
through its wholly owned subsidiary Fuel Tech, Inc. ("FTI"). Fuel-Tech N.V.,
incorporated in 1987 under the laws of the Netherlands Antilles, is registered
at Castorweg 22-24 in Curacao under No. 1334/N.V.

Fuel Tech, Inc.

     FTI's special focus is the worldwide marketing of its nitrogen oxide
("NOx") reduction and FUEL CHEM Processes. The NOx reduction technologies, which
include the NOxOUT, NOxOUT CASCADE, and NOxOUT SCR processes, reduce NOx
emissions in flue gas from boilers, incinerators, furnaces and other stationary
combustion sources. The FUEL CHEM business uses chemical processes for slagging,
fouling, corrosion control and plume abatement in furnaces and boilers through
the addition of chemicals into the fuel or by Targeted-In-Furnace-Injection. FTI
has a number of other technologies, such as NOxOUT ULTRA, both commercial and in
the development stage, that are for the most part add-ons to the NOxOUT Process
or similar in their technological base. Additionally, in 2002, Fuel Tech created
a separate division to market its high-end visualization software product. This
product, commercially introduced in 2002, is marketed under the "ACUITIV" trade
name. FTI's business is materially dependent on the continued existence and
enforcement of worldwide air quality regulations.

American Bailey Corporation

     American Bailey Corporation ("ABC") performs management services for Fuel
Tech under an Agreement dated April 30, 1998, as amended. Ralph E. Bailey,
Chairman, Chief Executive Officer and Managing Director of Fuel Tech, and
Douglas G. Bailey, Vice Chairman, Managing Director and Chief Strategic Officer
of Fuel Tech are shareholders of ABC. See the more detailed information relating
to this subject under the caption "Certain Relationships and Related
Transactions" in Fuel Tech's Proxy Statement to be distributed in connection
with Fuel Tech's 2003 Annual General Meeting of Shareholders, which information
is incorporated by reference. Also, refer to Note 8 to the consolidated
financial statements.

   NOx Reduction

Regulations and Markets

     The domestic U.S. air pollution control market is the primary driver in
Fuel Tech's NOx reduction business. This market is dependant on air pollution
regulations and their continued enforcement. These regulations are based on the
Clean Air Act Amendments of 1990 (the "CAAA") which require reductions in NOx
emissions on varying timetables with respect to various sources of emissions.
Under the SIP (State Implementation Plan) Call, a regulation promulgated under
the Amendments (discussed further below), over 1000 utility and large industrial
boilers in 19 states are required, as an aggregate, to achieve a NOx reduction
target by May 31, 2004. Also, in Europe under European Union Directives, over
100 industrial units must achieve NOx reductions by 2005.

     In 1994, governors of eleven Northeastern states, known collectively as the
Ozone Transport Region, signed a Memorandum of Understanding requiring utilities
to reduce their NOx emissions by 55% to 65% from 1990 levels by May 1999. In
1998, the EPA announced more stringent regulations. The Ozone Transport State
Implementation Plan (SIP) Call regulation, designed to mitigate the effects of
wind-aided ozone transported from the Midwestern and Southeastern U.S. into the
Northeastern non-attainment areas, requires, following the litigation described
below, 19 states to make even deeper aggregate reductions of 85% from 1990
levels by May 31, 2004. Over 1,000 utility and large industrial boilers are
affected by these mandates. Additionally, most other states with non-attainment
areas are also required to meet ambient air quality standards for ozone by 2007.

     Although the SIP Call was the subject of litigation, an appellate court of
the D.C. Circuit upheld the validity of this regulation. This court's ruling was
later affirmed by the U.S. Supreme Court.

     In February 2001, the U.S. Supreme Court, in a unanimous decision, upheld
EPA's authority to revise the National Ambient Air Quality Standard for ozone to
0.080 parts per million averaged through an eight-hour period from the current
0.120 parts per million for a one-hour period. This more stringent standard
provides clarity and impetus for air pollution control efforts well beyond the
current ozone attainment requirement of 2007. In keeping with this trend, the
Supreme Court, only days later, denied industry's attempt to stay the SIP Call,
effectively exhausting all means of appeal.


                                       1
<PAGE>

Products

     Fuel Tech's NOxOUT Process is a Selective Non-Catalytic Reduction ("SNCR")
process that uses non-hazardous urea as the reagent rather than ammonia. The
NOxOUT Process on its own is capable of reducing NOx by up to 40% for utilities
and by potentially significantly greater amounts for industrial units in many
types of plants with capital costs ranging from $6 - $20/kw for utility boilers
and with annualized operating costs ranging from $1,000 - $1,500/ton of NOx
removed.

     Fuel Tech's NOxOUT CASCADE Process uses catalyst as an add-on to the NOxOUT
Process to achieve performance similar to Selective Catalytic Reduction ("SCR").
Based on demonstrations, NOxOUT CASCADE's capital cost is less than that of SCR,
while operating costs are competitive with those experienced by SCR.

     Fuel Tech's NOxOUT SCR Process utilizes urea as a catalyst reagent to
achieve NOx reductions of up to 90% from stationary combustion sources with
capital and operating costs competitive with equivalently sized, standard SCR
systems.

     Fuel Tech is currently in the process of commercially offering its NOxOUT
ULTRA system. The system is designed to convert urea to ammonia, safely and
economically, for use as a reagent in the selective catalytic reduction process
(SCR) for NOx reduction. In this fashion, Fuel Tech intends to participate in
the SCR segment of the SIP Call driven market. Recent local hurdles in the
ammonia permitting process have raised concerns regarding the safety of ammonia
storage in quantities sufficient to supply SCR.

     Fuel Tech has sublicensed the Rich Reagent Injection Technology from
Reaction Engineering International, who has a direct license from the Electric
Power Research Institute. The technology has been proven in full-scale field
studies on cyclone-fired units to reduce NOx by 25-30%. The technology is a
generic SNCR whose applicability is outside the temperature range of NOxOUT. The
technology is seen as an add-on to Fuel Tech's NOxOUT systems, thus potentially
broadening the NOx reduction of the combined system to almost 50% with a minimal
additional capital requirement.

     Sales of the NOx reduction technologies were $25.5 million, $10.4 million,
and $17.4 million for the years ended December 31, 2002, 2001, and 2000,
respectively.


                                       2
<PAGE>

NOx Reduction Competition

     Processes competitive with Fuel Tech's NOx reduction products may be
expected from combustion modifications, SCR and ammonia SNCR, among others.

     Combustion modifications, including low NOx burners, can be fitted to most
types of boilers with cost and effectiveness varying with specific boilers.
Combustion modifications may effect 20-50% NOx reduction economically with
capital costs ranging from $5 - $40/kw and levelized total costs ranging from
$300 - $1,500/ton of NOx removed. Such companies as Alstom, Foster Wheeler
Corporation, The Babcock & Wilcox Company and Steam Sales Corporation are active
competitors in the low-NOx burner business.

     SCR is an effective and proven method of control for the removal of up to
90% of NOx. SCR has a high capital cost ranging from $55 - $150/kw on retrofit
coal applications. Such companies as Alstom, The Babcock & Wilcox Company,
Cormetech, Inc., Engelhard Corporation, Foster Wheeler Corporation, Peerless
Manufacturing Company, and the Siemens Westinghouse Power Corporation are active
SCR system providers.

     The use of ammonia as the reagent for the SNCR process was developed by the
ExxonMobil Corporation. Fuel Tech understands that the ExxonMobil patents on
this process have expired. This process can reduce NOx by 30% to 70% on
incinerators, but has limited applicability in the utility industry. Ammonia
system capital costs range from $15 - $22/kw, with annualized operating costs
ranging from $1,000 - $3,000/ton of NOx removed. These systems require the use
of stored ammonia, a hazardous substance.

     In addition to or in lieu of using the foregoing processes, certain
customers will elect to close or derate plants, purchase electricity from
third-party sources, switch from higher to lower NOx emitting fuels or purchase
NOx emission allowances.

FUEL CHEM

Product and Markets

     Fuel Tech's fireside and fuel additive programs, FUEL CHEM, help improve
unit performance and reduce customer operating costs. Through the program,
customers have enjoyed returns on their investments of up to 500%. The
Targeted-In-Furnace-Injection approach, a key FUEL CHEM technology on which two
patents have been issued, is a uniquely engineered and economical solution to
furnace fouling and corrosion problems. Electric utilities, the pulp and paper
industry and municipal solid waste incinerator facilities make up the principal
markets for the program.

     Sales of the FUEL CHEM products were $7.1 million, $7.2 million, and $4.5
million for the years ended December 31, 2002, 2001, and 2000, respectively.

Competition

     Competition for Fuel Tech's FUEL CHEM product line includes chemicals sold
by specialty chemical companies, such as GE Betz, Inc., primarily in the
traditional heavy-fuel-oil treatment area. No substantive competition currently
exists for Fuel Tech's technology for Targeted-In-Furnace-Injection of additives
for the control of slagging, fouling, and corrosion and for plume abatement, but
there can be no assurance that such lack of substantive competition will
continue.

Advanced Engineering Services and ACUITIV

     Fuel Tech uses its advanced engineering services to support the sale of
Fuel Tech's NOx reduction and FUEL CHEM systems, particularly through the use of
computational fluid dynamics ("CFD") tools. These CFD tools assist in the
prediction of the behavior of gas flows, thereby enhancing the implementation of
Fuel Tech's NOx reduction systems and the application of its FUEL CHEM slag and
corrosion control processes.

     In 2001 and 2002, Fuel Tech augmented its advanced engineering services
staff and equipment with a view toward not only better serving Fuel Tech's
customers but also to seek other applications for its services. Toward this
goal, the ACUITIV software product was commercially introduced on June 6, 2002,
and Fuel Tech recently received its second commercial order for this software.
The software allows users to visualize complex data sets in a virtual reality
environment, and, a recent version of the software was released which is
compatible with the Microsoft Windows(R) operating system. Although the validity
of the product has been confirmed, Fuel Tech does not expect revenues related to
this product to be material for the upcoming year.

 Intellectual Property

     See Item 2 "Description of Property" for information on Fuel Tech's
intellectual property and proprietary position, which are material to its
business.

 Employees

     Fuel Tech has 84 full-time employees, 79 in North America and 5 in Europe.
Fuel Tech enjoys good relations with its employees and is not a party to any
labor management agreements.



                                       3
<PAGE>


Risk Factors of the Business

     Investors in Fuel Tech should be mindful of the following risk factors
relative to Fuel Tech's business.

(i) Lack of Diversification

     Fuel Tech is engaged in two principal businesses; the marketing of products
to reduce air pollution, and the licensing of software that allows users to
visualize complex data sets. The software business is in its infancy and its
ultimate success is uncertain, while an adverse development in Fuel Tech's air
pollution control business as a result of competition, technological change,
government regulation, or any other factor could have a significantly greater
impact than if Fuel Tech maintained diverse operations.

(ii) Competition

     Competition in the NOx control market will come from processes utilizing
low-NOx burners, over-fired air, flue gas recirculation, ammonia SNCR, SCR and,
with respect to particular uses of urea not infringing Fuel Tech's patents, urea
(see Item 2 "Description of Property"). Competition will also come from business
practices such as the purchase rather than the generation of electricity, fuel
switching, closure or derating of units, and sale or trade of pollution credits.
Utilization by customers of such processes or business practices or combinations
thereof may adversely affect Fuel Tech's pricing and participation in the NOx
Control market if customers elect to comply with regulations by methods other
than Fuel Tech's NOxOUT or NOxOUT CASCADE processes. See above under this Item I
the text under the captions "Products" and "NOx Reduction Competition."

(iii) Dependence on Regulations and Enforcement

     Fuel Tech's business is primarily regulatory driven. That business will be
adversely impacted to the extent that regulations are repealed or amended to
significantly reduce the level of required NOx reduction, or to the extent that
regulatory authorities minimize enforcement. See also the text above under the
caption "Regulations and Markets."

(iv) Protection of Patents and Proprietary Rights

     Fuel Tech holds licenses to or owns a number of patents and has patents
pending. There can be no assurance that pending patent applications will be
granted or that outstanding patents will not be challenged or circumvented by
competitors. Certain critical technology relating to Fuel Tech's products is
protected by trademark and trade secret laws and confidentiality and licensing
agreements. There can be no assurance that such protection will prove adequate
or that Fuel Tech will have adequate remedies for disclosure of its trade
secrets or violations of its intellectual property rights. See Item 2
"Description of Property."


                                       4
<PAGE>

 ITEM 2. DESCRIPTION OF PROPERTY

     Fuel Tech's products are generally protected by U.S. and non-U.S. patents.
Fuel Tech owns 108 patents worldwide, with 3 patent applications pending in the
U.S. and 30 pending in non-U.S. jurisdictions. These patents cover some 44
inventions, 32 associated with the NOx reduction business; 2 associated with
FUEL CHEM, 2 associated with ACUITIV and 9 associated with non-commercialized
technologies. These inventions represent significant enhancements of the
application and performance of the technologies. Further, Fuel Tech believes
that the protection provided by the numerous claims in the above referenced
patents or patent applications is substantial, and affords Fuel Tech a
significant competitive advantage in its business. Accordingly, any significant
reduction in the protection afforded by these patents or any significant
development in competing technologies could have a material adverse effect on
Fuel Tech's business.

     Apart from its intellectual property, the property of Fuel Tech is not
material.

     Fuel Tech and its subsidiaries operate from leased office and engineering
facilities in Curacao, Netherlands Antilles; Batavia, Illinois; Stamford,
Connecticut; and Milan, Italy.

ITEM 3. LEGAL PROCEEDINGS

     Fuel Tech has no pending litigation material to its business.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     During the fourth quarter of 2002, no matters were submitted to a vote of
security holders.


                                       5
<PAGE>


                                     PART II

 ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market

     Fuel Tech's Common Shares have been traded since September 1993 on The
NASDAQ Stock Market, Inc. Fuel Tech's Common Shares are also traded on the
Berlin Stock Exchange.

Prices
     The table below sets forth the high and low sales prices during each
calendar quarter since January 2001.


    2002                                  High                Low
    ----                                  ----                ---
    Fourth Quarter                        4.950               2.760
    Third Quarter                         6.640               3.950
    Second Quarter                        7.250               5.200
    First Quarter                         6.820               4.500

    2001
    ----
    Fourth Quarter                        6.070               2.190
    Third Quarter                         3.700               2.010
    Second Quarter                        3.840               2.000
    First Quarter                         2.781               1.250

Dividends

     Fuel Tech has not to date paid dividends on its Common Shares and is not
expected to do so in the foreseeable future.

Holders

     Based on information from Fuel Tech's Transfer Agent, as of March 3, 2003,
there were 391 registered holders of Fuel Tech's common stock. Management
believes that, on such date, there were approximately 2,300 beneficial holders
of Fuel Tech's common stock.

Transfer Agent

     The Transfer Agent and Registrar for the Common Shares is Mellon Investor
Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey
07660.

Exchange Controls

     Fuel Tech received a license of unlimited duration from the Central Bank of
the Netherlands Antilles to exempt it from foreign exchange controls in dealings
with parties outside of the Netherlands Antilles or with parties in the
Netherlands Antilles holding a similar license. Fuel Tech also received a
business license of unlimited duration that allows the securities of Fuel Tech
to be held by non-residents of the Netherlands Antilles. There are no other
restrictions on the rights of such non-residents as shareholders. The books of
Fuel Tech are maintained in United States dollars, however, there are
transactions in other currencies.

Taxation

     Under the Netherlands Antilles tax code applicable to Fuel Tech until at
least the fiscal year 2019, Fuel Tech's income taxes in the Netherlands
Antilles, which are based on profits exclusive of Dutch dividends received, are
computed at a rate of 2.4% on the first 100,000 Netherlands Antilles Guilders
(approximately $60,000) and 3% on the excess. Also, capital gains and losses are
not included in the taxable profit of Fuel Tech. Based on a tax ruling received
by Fuel Tech, Dutch dividends received will be taxed to Fuel Tech at a rate of
5.0% at source, and at 5.5% of the net Dutch dividends in the Netherlands
Antilles until at least the fiscal year 2005. Fuel-Tech N.V. is not now liable
for tax in any jurisdiction other than the Netherlands Antilles. The
subsidiaries of Fuel Tech are generally subject to the tax regimes of the
jurisdictions where they are incorporated and conduct operations but not in the
Netherlands Antilles.

     Dividends paid by Fuel Tech to United States persons who are not engaged in
a trade or business through a permanent establishment in the Netherlands
Antilles are currently not subject to tax in the Netherlands Antilles. Gain or
loss derived by a United States person from the sale or exchange of Fuel Tech's
Common Shares are exempt from Netherlands Antilles income tax. The tax treaty
between the United States and the Netherlands Antilles was terminated effective
December 31, 1987.


                                       6
<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information for all equity compensation plans as of
the fiscal year ended December 31, 2002, under which the securities of Fuel Tech
were authorized for issuance:

<TABLE>
<CAPTION>

- -------------------------------- ---------------------------------- --------------------------- -------------------------------
       Plan Category               Number of Securities to be          Weighted-average            Number of securities
                                    issued upon exercise of            exercise price of          remaining available for
                                 outstanding options, warrants       outstanding options,          future issuance under
                                           and rights                 warrants and rights        equity compensation plans
                                                                                                   excluding securities
                                                                                                   listed in column (a)
- -------------------------------- ---------------------------------- --------------------------- -------------------------------
                                              (a)                              (b)                            (c)
- -------------------------------- ---------------------------------- --------------------------- -------------------------------
<S>                              <C>                                <C>                         <C>
Equity compensation plans                   2,207,000                         $2.71                         244,700
approved by security
holders (1)
- -------------------------------- ---------------------------------- --------------------------- -------------------------------

</TABLE>

     (1) Includes shares of Common Stock of Fuel Tech authorized for awards
under Fuel Tech's 1993 Incentive Plan, as amended through August 3, 1999.


                                       7
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

     Selected financial data is presented below as of the end of and for each of
the fiscal years in the five-year period ended December 31, 2002. The selected
financial data should be read in conjunction with the audited consolidated
financial statements as of and for the year ended December 31, 2002, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>


                                                                             For the years ended December 31
                                                          --------------- ------------ ------------ ------------- ---------------
                                                               2002          2001         2000          1999           1998
                                                          --------------- ------------ ------------ ------------- ---------------
<S>                                                       <C>             <C>          <C>          <C>           <C>
         STATEMENT of OPERATIONS DATA

         (in thousands of U.S. dollars, except for
         share data)

         Net sales                                              $ 32,627     $ 17,672     $ 21,906      $ 33,325         $25,864
         Selling, general and administrative and other
           costs and expenses                                     11,687        9,873        9,305         9,691           8,927
         Net income (loss)                                         3,057       (1,633)         415         3,008             539
                                                          --------------- ------------ ------------ ------------- ---------------

         Basic income (loss) per common share                     $ 0.16     $  (0.09)      $ 0.02        $ 0.17          $ 0.03
         Diluted income (loss) per common share                   $ 0.14     $  (0.09)      $ 0.02        $ 0.16          $ 0.03
         Weighted-average basic shares outstanding            19,350,000   18,592,000   18,396,000    17,752,000      15,680,000
         Weighted-average diluted shares outstanding          22,437,000   18,592,000   19,621,000    19,335,000      17,437,000

<CAPTION>

                                                                                       December 31
                                                          --------------- ------------ ------------ ------------- ---------------
                                                               2002          2001         2000          1999           1998
                                                          --------------- ------------ ------------ ------------- ---------------
<S>                                                       <C>             <C>          <C>          <C>           <C>
         BALANCE SHEET DATA
         (in thousands of U.S. dollars, except for per
           share data)

         Working capital                                        $ 13,947      $ 8,861     $ 12,542      $ 12,126         $ 9,047
         Total assets                                             25,869       20,328       23,089        24,464          19,153
         Total liabilities                                         9,064        7,193        8,522        10,773           8,837
         Shareholders' equity                                     16,805       13,135       14,567        13,691          10,316
         Net tangible book value per share                      $   0.64      $  0.56     $   0.59       $  0.52         $  0.45

</TABLE>

 Notes:

(1) Shareholders' equity includes outstanding nominal nil coupon non-redeemable
    perpetual loan notes. See Note 4 to the consolidated financial statements.

(2) Net tangible book value per share assumes full conversion of Fuel Tech's nil
    coupon non-redeemable perpetual loan notes into shares of Fuel Tech's common
    stock.

(3) Effective January 1, 2002, Fuel Tech adopted FASB (Financial Accounting
    Standards Board) Statement No. 142, "Goodwill and Other Intangible Assets."
    Under the guidance of this statement, goodwill and indefinite-lived
    intangible assets are no longer amortized but will be reviewed annually, or
    more frequently if indicators arise, for impairment. For the twelve months
    ended December 31, the following table depicts the impact on each of the
    prior years noted, had the non-amortization policy been applied.

<TABLE>
<CAPTION>

                                           2002           2001             2000            1999            1998
                                     ------------------------------------------------------------------------------
        <S>                          <C>             <C>                 <C>           <C>               <C>
        Reported net income (loss)     $ 3,057,000   $  (1,633,000)      $ 415,000     $ 3,008,000       $ 539,000
        Add back: Goodwill
        amortization                            --         334,000         334,000         199,000          57,000
                                     ------------------------------------------------------------------------------
        Adjusted net income (loss)      $3,057,000   $  (1,299,000)      $ 749,000     $ 3,207,000       $ 596,000
                                     ==============================================================================
        Basic earnings per share:
        Reported net income (loss)           $ .16         $  (.09)          $ .02           $ .17           $ .03
        Add back: Goodwill
        amortization                            --             .02             .02             .01             .01
                                     ------------------------------------------------------------------------------
        Adjusted net income (loss)           $ .16         $  (.07)          $ .04           $ .18           $ .04
                                     ==============================================================================
        Diluted earnings per share:
        Reported net income (loss)           $ .14         $  (.09)          $ .02           $ .16           $ .03
        Add back: Goodwill
        amortization                            --             .02             .02             .01             .01
                                     ------------------------------------------------------------------------------
        Adjusted net income (loss)           $ .14         $  (.07)          $ .04           $ .17           $ .04
                                     ==============================================================================

</TABLE>


                                       8
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Background


     Fuel-Tech N.V. (the "Company") operates primarily in the air pollution
control business. It distributes its products through its direct sales force,
licensees and agents. Principal markets for its products are stationary
combustion sources that produce nitrogen oxide (NOx) and other emissions. Fuel
Tech sells its fuel treatment chemicals through its direct sales force and
agents to industrial and utility power-generation facilities.

     Fuel Tech currently generates revenues from the following three product
lines:

Nitrogen Oxide ("NOx") Reduction Technologies

     Fuel Tech markets several NOx reduction technologies to meet statutory NOx
reduction requirements worldwide. The near-term driver for growth in this
business is the Ozone Transport SIP (State Implementation Plan) Call, which
requires 19 states to decrease their NOx emissions by May 31, 2004. This
regulation impacts 700-800 utility boilers and 400-500 large industrial boilers
(see below for more detail on the SIP Call). Fuel Tech believes that the
implementation of the SIP Call will extend well beyond the May, 2004
implementation date.

Fuel Treatment Chemicals

     Fuel Tech's proprietary Targeted-In-Furnace-Injection technology centers
around the unique application of specialty chemicals to improve the performance
of combustion units. Specifically, this technology is used to reduce slag
formation, corrosion and opacity in boilers, furnaces and incinerators. Fuel
Tech believes its largest market opportunity for this product line is those
units burning Western coals, many of which have significant operational issues
related to the formation of slag.

Visualization Software

     In 2002, Fuel Tech introduced a software product, marketed under the
ACUITIV trade name that allows users to visualize in a three dimensional
immersive environment, complex data sets. The software is currently being
marketed to users of Computation Fluid Dynamics ("CFD") software, an engineering
software tool that aids users in predicting flows, such as liquid or gas
streams. Fuel Tech developed this software internally to make the design process
of its NOx reduction and fuel treatment chemical business more efficient and
accurate.

     Fuel Tech licenses this product to end users on an annual or permanent
basis. Fuel Tech will not record license revenue until its capitalized software
development costs, with a balance of approximately $490,000 at December 31,
2002, are recovered. This product was introduced in mid-2002, and to date two
licenses have been sold. Fuel Tech expects demand for this product to increase
in 2003, as it recently introduced a version of the software that is compatible
with the Microsoft Windows operating system. Fuel Tech does not believe,
however, that it will recognize significant revenues in 2003 from this product
due to the cost recovery requirement discussed above.

2002 versus 2001

     Net sales for the 12 months ended December 31, 2002 and 2001 were
$32,627,000 and $17,672,000, respectively. The improvement is attributable to
the increase in domestic NOx reduction utility project revenues, as project
bookings in the fourth quarter of 2001 and in 2002 generated revenues during
their various phases of completion. NOx reduction utility revenue in 2001 had
been negatively impacted by the delay in obtaining a final ruling on the
Environmental Protection Agency's (EPA) SIP (State Implementation Plan) Call
regulation. As discussed further below, the uncertainty regarding this
regulation has been lifted and Fuel Tech expects demand for its NOx reduction
technologies to continue to increase during the next few years. Fuel treatment
chemical revenues for the twelve-month period ended December 31, 2002 continued
to be favorably impacted by shipments to utilities burning Western coals. Fuel
Tech believes that utilities burning Western coals represent the largest market
opportunity for its fuel treatment chemical business and that penetration into
this market is a priority. In addition to shipments to PacifiCorp, Fuel Tech's
strategic agreement partner, demonstrations with two midwestern utilities, both
on coal-fired units, commenced during the year. All of these utilities are using
Fuel Tech's patented Targeted-In-Furnace-Injection (TIFI) process to control the
formation of slag deposits in boilers burning western coals. More than
offsetting the improved performance in the coal-fired utility segment of this
market were the following two factors: first, the continued deterioration in the
oil-fired business, as the high price of oil as compared with the price of
natural gas caused customers in this segment to switch fuels, negatively
impacting results. Second, the use of low-slagging coal by one of Fuel Tech's
customers caused that customer to temporarily suspend treatment. Although Fuel
Tech believes that both factors will reverse themselves, it is not possible to
predict when that will occur.

     The "SIP Call" is the federal mandate that, when introduced in 1998,
required 22 states to reduce NOx emissions by May 2003. On March 3, 2000, an
appellate court of the D.C. Circuit upheld the validity of the SIP Call for 19
of the 22 states and, on June 22, 2000, the same court made a final ruling
upholding the EPA's SIP call regulation and denying the appeal of the states and
utilities. Although the NOx reduction requirement date was moved back one year
to May of 2004, nineteen states were required to complete and issue their State
Implementation Plans for NOx reduction by October of 2000. These plans, which
the EPA had until October 2001 to approve, will potentially impact 700 to 800
utility boilers and 400 to 500 industrial units.


                                       9
<PAGE>

     In February 2001, the United States Supreme Court, in a unanimous decision,
upheld EPA's authority to revise the National Ambient Air Quality Standard for
ozone to 0.080 parts per million averaged through an eight-hour period from the
current 0.120 parts per million for a one-hour period. This more stringent
standard provides clarity and impetus for NOx reduction efforts well beyond the
current ozone attainment requirement of 2007. In keeping with this trend, the
Supreme Court, only days later, denied industry's attempt to again stay the SIP
Call, effectively exhausting all means of appeal.

     Based on these regulatory developments, Fuel Tech is enjoying accelerated
interest in its NOx reduction programs that have led to significant project
bookings late in 2001 and in 2002. Fuel Tech anticipates continued demand for
its air pollution control technologies over the next several years.

     Cost of sales, as a percentage of net sales, for the 12-month period ended
December 31, 2002 was 56% versus 51% for the same period of the prior year. The
increase reflects a change in product mix in 2002, in favor of the lower margin
NOx reduction project business.

     Selling, general and administrative expenses were $10,232,000 and
$8,708,000, respectively, for the 12-month periods ended December 31, 2002 and
2001. The increase is due primarily to revenue-related expenses, as revenue
increased significantly from the prior year, and secondarily to the addition of
sales and marketing personnel, both for the fuel treatment chemical and ACUITIV
businesses. Market penetration of Fuel Tech's TIFI technology in the coal-fired
utility market remains a strategic priority.

     Research and development expenses for the 12 months ended December 31, 2002
and 2001 were $1,455,000 and $1,165,000, respectively. Fuel Tech continues to
pursue commercial applications for its technologies outside of its traditional
markets, with a particular focus on its ACUITIV software and its NOxOUT ULTRA
process. The ACUITIV software product was commercially introduced on June 6,
2002, and Fuel Tech recently received its second commercial order.

     Fuel Tech recorded a loss of $54,000 for the 12 months ended December 31,
2002 on its equity investment in Fuel Tech CS GmbH (FTCS), a 49 percent-owned
entity. During the quarter ended March 31, 2002, Fuel Tech recognized a gain of
$250,000 on its equity investment in Clean Diesel Technologies, Inc. (CDT), its
15.2 percent-owned affiliate. The gain resulted from CDT's repayment of the full
principal amount of loans made by Fuel Tech to CDT in 2000 and 2001. Because of
the continuing losses incurred by CDT, the carrying value of the loans was
reduced to zero as of December 31, 2001, based on Fuel Tech's pro-rata share of
the losses incurred. Fuel Tech's investment in CDT, whose shares are publicly
traded on the OTC Bulletin Board and the Alternative Investment Market of the
London Stock Exchange, had a market value of $2.7 million at December 31, 2002,
which is not reflected on Fuel Tech's balance sheet.

     During the 12 months ended December 31, 2001, Fuel Tech recognized a
$92,000 loss on its equity investment in FTCS, while a loss of $250,000 was
recorded on Fuel Tech's investment in CDT for the same period. Please refer to
Note 8 of the consolidated financial statements for a further discussion of
related party transactions.

     Interest expense for the 12 months ended December 31, 2002 was reduced to
$136,000 from $245,000 in the prior 12-month period. The decrease is
attributable to a reduction in the average outstanding principal balance on Fuel
Tech's term loan, as well as to a reduction in short term interest rates.

     Other income and expense for the 12-month period ended December 31, 2002
was $139,000 versus $37,000 for the same period in 2001. The increase stems
largely from the elimination of goodwill amortization effective January 1, 2002,
which has been offset somewhat by reductions in interest income.

     An income tax benefit of $150,000 was recorded in 2002, which represented a
reduction of the reserve for prior years' state income tax refunds receivable,
as the related receivables were collected in 2002. No provision for federal or
state income taxes was recorded in any period due to the existence of net
operating loss carry forwards. Fuel Tech has $32.4 million in United States
federal income tax loss carry forwards as of December 31, 2002, the deferred tax
benefit of which has been offset by a valuation allowance in Fuel Tech's balance
sheet.

     In the opinion of management, Fuel Tech's expected near-term revenue growth
in its NOx reduction business will be directly related to the implementation of
the requirements of the CAAA. Fuel Tech's implementor and alliance strategies
will enable Fuel Tech to provide the NOxOUT Process to an increasing number of
customers without significantly adding technical and support staff. Customers
purchase the NOxOUT Process and related technologies from either Fuel Tech or
its implementors. If customers purchase the NOxOUT Process from implementors,
the per contract revenues to Fuel Tech may be lower, but more installations may
be handled.


                                       10
<PAGE>

2001 versus 2000

     Net sales in 2001 totaled $17,672,000 versus net sales of $21,906,000 in
2000, a decline of 19%. This overall decline was due to a $9,100,000 year on
year reduction in domestic NOx reduction industrial project revenues, the basis
of which is discussed further below. This result was partially offset by two
favorable factors. First, Fuel Tech experienced a $2,776,000 increase in fuel
treatment chemical revenues in 2001 versus 2000, to a record level of
$7,209,000. Second, Fuel Tech realized revenues from temperature mapping and
modeling activities predominantly for the domestic NOx reduction utility project
business in the amount of approximately $1,700,000 in 2001 versus an immaterial
amount in 2000.

     The year on year decline in domestic NOx reduction industrial project
revenues was attributable to a NOx reduction regulation, as mandated in Title
III of the CAAA, requiring municipal solid waste incinerators to significantly
reduce their NOx emissions by December 1, 2000. This regulation had a
significant positive impact on industrial project revenues in 2000, and it was
expected that these revenues would not repeat in 2001. NOx reduction utility
revenue had been negatively impacted by the delay in obtaining a final ruling on
the EPA's SIP Call regulation.

     The increase in fuel treatment chemical revenues was attributable to Fuel
Tech's success in penetrating the market for utility units burning Western
coals, and to customers' conversion from existing suppliers to Fuel Tech.
Significant focus was placed on marketing Fuel Tech's patented
Targeted-In-Furnace-Injection approach to reduce the operating costs of
customers' units.

     In 2001, Fuel Tech realized approximately $1,700,000 in revenues from
temperature mapping and modeling orders received on 40 boilers predominantly for
the domestic NOx reduction utility project business. Fuel Tech's performance of
temperature mapping and modeling work for a customer is the precursor to
performing NOx reduction project installations on the units for which the
mapping and modeling has been performed. It is Fuel Tech's belief that project
orders will be received from the majority of customers for whom temperature
mapping and modeling work has been performed.

     The gross margin percentage on an overall basis across all products was 49%
in 2001, compared with 46% in 2000. The improvement was realized primarily due
to the increase in revenues in the fuel treatment chemical business. As NOx
reduction revenues from utility companies in the United States increase due to
the above-mentioned regulations, this business will comprise a much larger
percentage of Fuel Tech's overall revenues. As a result, Fuel Tech expects that
the overall gross margin percentages will decline over the next several years,
reflecting the change in product mix.

     Selling, general and administrative expenses were $8,708,000 for the twelve
months ended December 31, 2001, an increase of $774,000 from the prior year. The
increase was due primarily to a higher level of selling and service expenses
resulting from the increased agents fees and commissions for the U.S. fuel
treatment chemical business, and to a lesser extent to an increase in expenses
related to the enhancement and expansion of Fuel Tech's European business.

     Research and development expenses for the twelve months ended December 31,
2001 and 2000 were $1,165,000 and $843,000, respectively. Fuel Tech continued to
aggressively pursue commercial applications for its technologies outside of its
traditional markets, with a particular focus on its NOxOUT ULTRA process and its
ACUITIV advanced visualization software. Fuel Tech sold its first commercial
demonstration of NOxOUT ULTRA late in 2001.

     Fuel Tech recorded a net loss from its equity interest in affiliates during
the year 2001 of $342,000. This amount consisted of a $250,000 loss recognized
on its equity investment in Clean Diesel Technologies, Inc. (CDT), and a $92,000
loss on its investment in Fuel Tech CS GmbH. Fuel Tech had a 16% common stock
ownership interest in CDT as of December 31, 2001, while Fuel Tech had a 49%
ownership interest in Fuel Tech CS GmbH as noted above. Please refer to Note 8
of the consolidated financial statements for a further discussion of related
party transactions.

     Interest expense decreased to $245,000 for the twelve-month period ended
December 31, 2001 from $354,000 for the same period in 2000. The favorable
variance was due solely to the decrease in the average outstanding principal
debt balance during the year, and to a decrease in short-term interest rates.

     Other income and expense for the twelve-month period ended December 31,
2001 was $37,000 versus $82,000 for the same period in 2000. The decrease was
due to a lower level of interest income that was driven by the decrease in
short-term interest rates noted above, and to the write down of impaired assets.
Partially offsetting these factors was a gain in the amount of approximately
$180,000 related to the dissolution of the wholly owned subsidiaries in Poland
and Taiwan. The entity in Poland has not been operational since 1997, and the
entity in Taiwan operated only as a sales agency office.

     Fuel Tech recorded a tax benefit of $114,000 in 2001 related to the Italian
subsidiary. There were no domestic income taxes recorded in 2001 as Fuel Tech
recorded a net loss for the year. Fuel Tech had $39.9 million in United States
federal income tax loss carryforwards as of December 31, 2001, the deferred tax
benefit of which has been offset by a valuation allowance in Fuel Tech's balance
sheet.


                                       11
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Fuel Tech's cash and cash equivalents were approximately $10.9 million at
December 31, 2002 versus $9.3 million at December 31, 2001. Operating activities
provided $3.0 million of cash in 2002 primarily due to Fuel Tech's operating
profits. Investing activities, which used cash of $1.1 million during the year,
were primarily comprised of the continued investment in equipment and
intellectual property of $1.3 million, which was partially offset by the
aforementioned loan repayment by CDT. Financing activities, which used cash of
$365,000 during the year, were comprised primarily of debt repayments of
$900,000, which were offset by cash received from the exercise of stock options.

     Historically, Fuel Tech had financed its operations principally through the
private placement of its Common Shares and the private placement of nil coupon
non-redeemable convertible unsecured loan notes (the "Loan Notes"). The Loan
Notes are convertible at any time into Fuel Tech's common stock. They bear no
interest, have no maturity date and are repayable generally only in the event of
the winding up of Fuel Tech. Fuel Tech has therefore classified the Loan Notes
within shareholders' equity in its balance sheet.

     At December 31, 2002, Fuel Tech had cash and cash equivalents of
$10,939,000 and working capital of $13,947,000 versus $9,338,000 and $8,861,000
at the end of 2001, respectively.

     Fuel Tech, Inc. (FTI), a wholly owned subsidiary of Fuel Tech, has a $10.0
million revolving credit facility expiring July 31, 2004, which is
collateralized by all personal property owned by FTI. FTI can use this facility
for cash advances and standby letters of credit. Cash advances under this
facility bear interest at the bank's prime rate, or at an optional rate that can
be selected by FTI which is based on the bank's Interbank Offering Rate plus
2.25%.

     Also, FTI has a term loan agreement with the same bank for a total
principal balance of $4.5 million. The principal balance was to be repaid in
quarterly installments of $225,000 commencing on December 31, 1999, with a final
principal payment of $1,575,000 due on January 31, 2003. Further, FTI entered
into an interest rate swap transaction that fixed the rate of interest at 8.91%
on approximately 50% of the outstanding principal balance during the term of the
loan. This swap expired on October 22, 2002. The remaining principal balance
bears interest at the bank's prime rate, or an optional rate that can be
selected by FTI, and is based on the bank's Interbank Offering Rate plus 2.25%.
The borrowings under this facility are collateralized by all personal property
owned by FTI.

     The $10.0 million revolving credit facility was obtained via an amendment,
effective December 31, 2002, that increased the credit facility from $6.0
million to $10.0 million and extended the agreement until July 31, 2004. The
term loan was paid in full on January 31, 2003 using funds from the line of
credit.

     At December 31, 2002, the bank had provided standby letters of credit,
predominantly to customers, totaling approximately $927,028 in connection with
contracts in process. FTI is committed to reimbursing the issuing bank for any
payments made by the bank under these letters of credit. At December 31, 2002,
there were no cash borrowings against the revolving credit facility and
$9,072,972 was available for utilization.

     The carrying amount of debt approximates fair value at December 31, 2002.

     Interest payments were $156,000, $250,000 and $373,000 for the years ended
December 31, 2002, 2001 and 2000, respectively

     Fuel Tech believes that it will have sufficient resources to fund its
growth and operations going forward.



                                       12
<PAGE>

Contractual Obligations and Commitments

     In its normal course of business, Fuel Tech enters into agreements that
obligate Fuel Tech to make future payments. The operating lease obligations
noted below are primarily related to supporting the normal operations of the
business and are not recognized as liabilities in Fuel Tech's consolidated
balance sheet in accordance with generally accepted accounting principles.

     Also shown below is the term loan balance at December 31, 2002, which, as
noted previously, was paid in full on January 31, 2003 using funds from the line
of credit.

<TABLE>
<CAPTION>


- ---------------------------- -----------------------------------------------------------------------------------------------
                                                  Payments due by period in thousands of US dollars
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
    Contractual Cash             Total           Less than 1         2-3 years           4-5 years          Thereafter
      Obligations                                    year
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
<S>                          <C>                <C>                <C>                <C>                 <C>
Operating leases                 $1,367               $347              $ 430                $366               $224
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
Term Loan                         1,800                  -              1,800                   -                  -
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
Total Contractual Cash           $3,167               $347             $2,230                $366               $224
Obligations
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>

     Fuel Tech in the normal course of business, uses bank performance
guarantees and letters of credit in support of construction contracts with
customers as follows:

     - in support of the warrantee period defined in the contract, or
     - in support of the system performance criteria that are defined in the
       contract

     In addition, Fuel Tech uses letters of credit as security for other
obligations as needed in the normal course of business. As of December 31, 2002,
Fuel Tech has outstanding bank performance guarantees and letters of credit as
noted in the table below:

<TABLE>
<CAPTION>

- ---------------------------- -----------------------------------------------------------------------------------------------
                                             Commitment expiration by period in thousands of US dollars
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
 Commercial Commitments          Total           Less than 1         2-3 years           4-5 years          Thereafter
                                 year
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
<S>                          <C>                <C>                <C>                <C>                 <C>
Standby letters of               $927               $821               $106                   -                  -
credit and bank
guarantees
- ---------------------------- ------------------ ------------------ ------------------ ------------------- ------------------
</TABLE>

Critical Accounting Policies and Estimates

     The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require Fuel Tech to make estimates and assumptions. Fuel Tech believes that of
its significant accounting policies (see Note 1 to the consolidated financial
statements), the following involves a higher degree of judgment and complexity:

     Fuel Tech uses the percentage of completion method of accounting for
certain long-term equipment construction and license contracts. Under the
percentage of completion method, sales and gross profit are recognized as work
is performed based on the relationship between actual engineering hours and
equipment construction costs incurred and total estimated hours and costs at
completion. Since the financial reporting of these contracts depends on
estimates, which are assessed continually during the term of the contract,
recognized sales and profit are subject to revisions as the contract progresses
to completion. Revisions in profit estimates are reflected in the period in
which the facts that give rise to the revision become known.

FORWARD-LOOKING INFORMATION

     From time to time, information provided by Fuel Tech, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Annual Report) may contain statements that
are not historical facts, so-called "forward-looking statements." These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Fuel Tech's actual future
results may differ significantly from those stated in any forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, litigation, risk of dependence on significant customers, third-party
suppliers and intellectual property rights, risks in product and technology
development and other risk factors detailed in this Annual Report and in Fuel
Tech's Securities and Exchange Commission filings.


                                       13
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Fuel Tech's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. Fuel Tech does not enter into
foreign currency forward contracts or into foreign currency option contracts to
manage this risk due to the immaterial nature of the transactions involved.

     Fuel Tech is also exposed to changes in interest rates primarily due to its
long-term debt arrangement (refer to Note 7 to the consolidated financial
statements). A hypothetical 100 basis point adverse move in interest rates along
the entire interest rate yield curve would not have a materially adverse effect
on interest expense during the upcoming year ended December 31, 2003.


                                       14
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS OF FUEL-TECH N.V.

We have audited the accompanying consolidated balance sheets of Fuel-Tech N.V.
as of December 31, 2002 and 2001, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 2002. These consolidated financial statements are
the responsibility of Fuel Tech's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fuel-Tech N.V. at December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, Fuel Tech changed its method of accounting for goodwill to
conform with SFAS No. 142, "Goodwill and Other Intangible Assets," and effective
January 1, 2001, changed its method of accounting for derivative financial
instruments to conform with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities."

Ernst & Young LLP

Chicago, Illinois
February 19, 2003


                                       15
<PAGE>

Consolidated Balance Sheets

(in thousands of U.S. dollars, except share data)

<TABLE>
<CAPTION>

                                                                 2002              2001
                                                               --------------------------
<S>                                                             <C>               <C>
December 31

ASSETS
Current assets:
   Cash and cash equivalents                                    $10,939           $9,338
   Accounts receivable, net of allowances for doubtful
    accounts of $107 and $162, respectively                       8,849            5,368
   Inventories                                                      420              274
   Prepaid expenses and other current assets                        744              583
                                                               --------------------------
Total current assets                                             20,952           15,563

Equipment, net of accumulated depreciation of $5,118 and
    $4,222, respectively                                          2,123            1,756
Goodwill, net of accumulated amortization of $924                 2,119            2,126
Other assets                                                        675              883
                                                               --------------------------
Total assets                                                    $25,869          $20,328
                                                               ==========================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of note payable                             $      -          $ 2,700
   Accounts payable                                               5,065            1,978
   Accrued liabilities:
     Employee compensation                                          802              513
     Deferred revenue                                                 -              319
     Other accrued liabilities                                    1,138            1,192
                                                               --------------------------
Total current liabilities                                         7,005            6,702

Note payable                                                      1,800                -
Other liabilities                                                   259              491
                                                               --------------------------
Total liabilities                                                 9,064            7,193

Shareholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized,
   19,613,817 and 18,984,097 shares issued, respectively            196              190
Additional paid-in capital                                       90,315           87,720
Accumulated deficit                                             (73,150)         (76,207)
Accumulated other comprehensive income (loss)                        10              (68)
Treasury stock                                                   (1,098)          (1,098)
Nil coupon perpetual loan notes                                     532            2,598
                                                               --------------------------
Total shareholders' equity                                       16,805           13,135
                                                               --------------------------
Total liabilities and shareholders' equity                      $25,869          $20,328
                                                               ==========================
</TABLE>

See notes to consolidated financial statements.


                                       16
<PAGE>


Consolidated Statements of Operations
(in thousands of U.S. dollars, except share data)

<TABLE>
<CAPTION>

                                                                        2002               2001              2000
                                                                  -------------      -------------       ------------
<S>                                                               <C>                <C>                 <C>
For the years ended December 31


Net revenues                                                       $     32,627       $     17,672       $     21,906

Costs and expenses
    Cost of sales                                                        18,232              8,996             11,757
    Selling, general and administrative                                  10,232              8,708              7,934
    Research and development                                              1,455              1,165                843
    Closing costs of German subsidiary                                        -                  -                528
                                                                   ------------       ------------ ------------------
                                                                         29,919             18,869             21,062
                                                                   ------------ ------------------ ------------------
Operating income (loss)                                                   2,708             (1,197)               844

Income (loss) from equity interest in affiliates                            196               (342)              (195)
Interest expense                                                           (136)              (245)              (354)
Other income (expense):
     Gain on sale of German subsidiary chemical business                      -                  -                269
     Cumulative translation loss of German subsidiary                         -                  -               (231)
     Other income, net                                                      139                 37                 82
                                                                   ------------ ------------------ ------------------
Income (loss) before taxes                                                2,907             (1,747)               415
Income tax benefit                                                          150                114                  -
                                                                   ------------ ------------------ ------------------
Net income (loss)                                                  $      3,057       $     (1,633)      $        415
                                                                   ============ ================== ==================

Net income (loss) per common share
     Basic                                                         $       0.16       $      (0.09)      $       0.02
     Diluted                                                               0.14              (0.09)              0.02

Average number of common shares outstanding
     Basic                                                           19,350,000         18,592,000         18,396,000
     Diluted                                                         22,437,000         18,592,000         19,621,000

</TABLE>

 See notes to consolidated financial statements.


                                       17
<PAGE>

Consolidated Statements of Shareholders' Equity
(in thousands of U.S. dollars, except share data in thousands)

<TABLE>
<CAPTION>


                                                                          Accumulated
                                   Common Stock   Additional                 Other         Treasury Stock     Nil Coupon
                                   ------------    Paid-in   Accumulated Comprehensive    --------------      Perpetual
                                 Shares  Amount    Capital     Deficit    Income (Loss)    Shares   Amount     Loan Notes     Total
                               -----------------------------------------------------------------------------------------------------
<S>                            <C>       <C>      <C>       <C>          <C>              <C>    <C>          <C>          <C>

Balance at January 1,          18,328    $183     $85,692    $ (74,989)       $ (25)       94    $ (1,058)       $3,888    $ 13,691
2000
Comprehensive income:
   Net income                                                      415                                                          415
   Foreign currency
   translation
   Adjustments                                                                  122                                             122
                                                                                                                         ----------
Comprehensive income                                                                                                            537
Conversion of nil coupon
   perpetual loan notes
   into common stock                7       -          68                                                           (68)          -
Exercise of stock options         192       2         337                                                                       339
                             ------------------------------------------------------------------------------------------------------
Balance at December 31,        18,527    $185     $86,097    $ (74,574)       $  97        94    $ (1,058)       $3,820    $ 14,567
2000
                             -----------------------------------------------------------------------------------------------------
Comprehensive loss:
   Net loss                                                     (1,633)                                                      (1,633)
   Adjustment for fair
   value of derivative                                                          (42)                                            (42)
   Foreign currency
   translation
   adjustments                                                                 (123)                                           (123)
                                                                                                                         ----------
Comprehensive loss                                                                                                           (1,798)
Conversion of nil coupon
   perpetual loan notes
   into common stock              200       2       1,220                                                        (1,222)          -
Exercise of stock options         216       3         403                                                                       406
Other                              41                                                     (30)        (40)                      (40)
                             ------------------------------------------------------------------------------------------------------
Balance at December 31,
2001                           18,984    $190     $87,720    $(76,207)        $ (68)       64    $ (1,098)       $2,598     $13,135

                             ------------------------------------------------------------------------------------------------------
Comprehensive loss:
   Net income                                                   3,057                                                         3,057
   Adjustment for fair
   value of derivative                                                           42                                              42
   Foreign currency
   translation
   adjustments                                                                   36                                              36
                                                                                                                         ----------
Comprehensive income                                                                                                          3,135
Conversion of nil coupon
   perpetual loan notes
   into common stock              387       4       2,062                                                        (2,066)          -
Exercise of stock options         243       2         533                                                                       535
Other                                                                                      46

                             ------------------------------------------------------------------------------------------------------
Balance at December 31,        19,614    $196     $90,315    $(73,150)         $ 10       110    $ (1,098)        $ 532     $16,805
2002                         ======================================================================================================

</TABLE>

 See notes to consolidated financial statements.


                                       18
<PAGE>

Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)

<TABLE>
<CAPTION>
                                                                             2002          2001         2000
                                                                         -----------------------------------
<S>                                                                      <C>           <C>           <C>
For the years ended December 31

OPERATING ACTIVITIES
Net income (loss)                                                        $  3,057      $ (1,633)     $    415
 Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Depreciation                                                              902           769           601
    Amortization                                                               41           375           382
    Provision for doubtful accounts                                           289            44           233
    Loss on equipment disposals/impaired assets                               186           156            82
    (Income) loss from equity interest in affiliates                         (196)          342           195
    Income taxes                                                             (150)            -             -
    Closing reserve for German subsidiary                                       -             -           528
    Cash payments against German subsidiary closing reserve                   (20)          (26)         (277)
    Gain on sale of German subsidiary chemical business                         -             -          (269)
    Cumulative translation (gain) loss                                          -           (90)          231

   Changes in operating assets and liabilities:
       Accounts receivable                                                 (3,813)        2,110         1,758
       Inventories, prepaid expenses, other current assets
         and other noncurrent assets                                         (214)          422          (334)
      Accounts payable, accrued liabilities, deferred
         revenue and other noncurrent liabilities                           2,912          (417)       (1,957)
      Other                                                                     7             8             3
                                                                         ------------------------------------
Net cash provided by operating activities                                   3,001         2,060         1,591

INVESTING ACTIVITIES
   Investment in and loans to CDT                                             250          (125)         (350)
   Investment in Fuel Tech CS GmbH                                              -             -          (116)
   Proceeds from sale of German subsidiary's chemical                           -             -           122
      business
   Proceeds from sale of equipment                                             17             -             -
   Purchases of equipment and patents                                      (1,338)       (1,016)         (774)
                                                                         ------------------------------------
Net cash used in investing activities                                      (1,071)       (1,141)       (1,118)

FINANCING ACTIVITIES
     Proceeds from exercise of stock options                                  535           406           339
     Purchase and retirement of nil coupon loan notes                           -             -             -
     Purchase of treasury shares                                                -           (40)            -
     Repayment of borrowings                                                 (900)         (900)         (675)
                                                                         ------------------------------------
Net cash used in financing activities                                        (365)         (534)         (336)

Effect of exchange rate fluctuations on cash                                   36           (34)         (109)
                                                                         ------------------------------------
Net increase in cash and cash equivalents                                   1,601           351            28
Cash and cash equivalents at beginning of year                              9,338         8,987         8,959
                                                                         ------------------------------------
Cash and cash equivalents at end of year                                 $ 10,939      $  9,338      $  8,987
                                                                         ====================================
</TABLE>


 See notes to consolidated financial statements.



                                       19
<PAGE>

Notes to Consolidated Financial Statements

1. Organization and Significant Accounting Policies

Organization

     Fuel-Tech N.V. ("Fuel Tech") is a holding company primarily in the business
of air pollution control. Fuel Tech's primary focus, through its wholly owned
subsidiary, Fuel Tech, Inc. ("FTI"), is on the worldwide marketing and sale of
its NOxOUT Process and related technologies as well as its FUEL CHEM fuel
treatment chemical product line. The NOxOUT Process reduces nitrogen oxide
("NOx") emissions from boilers, furnaces and other stationary combustion
sources. FUEL CHEM is based on Fuel Tech's proprietary
Targeted-In-Furnace-Injection technology in the unique application of specialty
chemicals to improve the performance of combustion units. Fuel Tech's business
is materially dependent on the continued existence and enforcement of air
quality regulations, particularly in the United States. Fuel Tech recently
introduced a software product under the ACUITIV trade name that allows users of
high-end engineering software to visualize complex data sets in an immersive,
virtual reality environment. Fuel Tech has expended significant resources in the
research and development of new technologies in building its proprietary
portfolio of air pollution control, fuel treatment chemicals, computer modeling
and advanced visualization technologies.

     For the years ended December 31, 2002, 2001, and 2000, 12%, 25%, and 20% of
Fuel Tech's revenues, respectively, were derived from international markets,
principally in Europe and Asia.

Basis of Presentation

     The consolidated financial statements include the accounts of Fuel Tech and
its wholly owned subsidiaries. All intercompany transactions have been
eliminated.

Reclassifications

     Certain amounts included in prior year financial statements have been
reclassified to conform to the current year presentation.

Use of Estimates

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation

     The functional currency for Fuel Tech's foreign subsidiaries is the
respective local currency. Accordingly, assets and liabilities are translated
into U.S. dollars at current exchange rates, and revenues and expenses are
translated using average rates of exchange prevailing during the year.
Adjustments resulting from translation of financial statements denominated in
currencies other than the U.S. dollar are included in accumulated other
comprehensive income or loss. Foreign currency transaction gains and losses are
included in the determination of net income.

Cash Equivalents and Financial Instruments

     Fuel Tech considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 2002,
substantially all of Fuel Tech's cash and cash equivalents are on deposit with
three financial institutions. All financial instruments are reflected in the
accompanying balance sheets at amounts that approximate fair market value.



                                       20
<PAGE>

Derivative Financial Instruments

     Effective January 1, 2001, Fuel Tech adopted SFAS 133, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in
accumulated other comprehensive income or loss, and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in earnings.

Interest Rate Risk Management:

     Fuel Tech is exposed to interest rate risk due to its long-term debt
arrangement. Fuel Tech used an interest rate derivative instrument (an interest
rate swap) to manage exposure to interest rate changes. Fuel Tech had entered
into an interest rate swap transaction that fixed the rate of interest at 8.91%
on approximately 50% of the outstanding principal balance during the term of the
loan. The term of the swap was from October 22, 1999 until October 22, 2002, at
which date it expired. At the date of adoption, January 1, 2001, Fuel Tech
recorded the fair value of the interest rate swap, a credit of approximately
$20,000, as an "other liability" with a corresponding decrease to "accumulated
other comprehensive income."

Foreign Currency Risk Management:

     Fuel Tech's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. Fuel Tech does not enter into
foreign currency forward contracts or into foreign currency option contracts to
manage this risk due to the immaterial nature of the transactions involved.

Accounts Receivable

     Accounts receivable includes unbilled receivables, representing costs and
estimated earnings in excess of billings on contracts under the percentage of
completion method. At December 31, 2002 and 2001, unbilled receivables were
approximately $1,225,000 and $2,057,000, respectively. The allowance for
doubtful accounts is established based on Fuel Tech's historical level of
write-off activity.


                                       21
<PAGE>

Goodwill and Other Intangibles

     The goodwill recognized as a result of prior transactions was being
amortized by the straight-line method over periods of nine and ten years.
Effective January 1, 2002, Fuel Tech adopted FASB (Financial Accounting
Standards Board) Statement No. 142, "Goodwill and Other Intangible Assets."
Under the guidance of this statement, goodwill and indefinite-lived intangible
assets will no longer be amortized but will be reviewed annually, or more
frequently if indicators arise, for impairment. In connection with the adoption
of FASB No. 142, Fuel Tech completed the required transitional and annual
goodwill impairment testing using the market capitalization methodology. Based
on the testing performed, no impairment was indicated. The following is a
reconciliation of 2001 and 2000 net earnings and basic and diluted earnings per
share between the amounts previously reported by Fuel Tech and the adjusted
amounts that would have been reported if SFAS No. 142 had been applied in prior
periods.

                                                     For the twelve months
                                                      ended December 31
                                               --------------------------------
                                                   2001                  2000
                                               --------------------------------

         Reported net (loss) income              $ (1,633,000)       $ 415,000
         Add back: Goodwill amortization              334,000          334,000
                                               --------------------------------
         Adjusted net (loss) income              $ (1,299,000)       $ 749,000
                                               ================================
         Basic earnings per share:
         Reported net (loss) income                    $ (.09)           $ .02
         Add back: Goodwill amortization                  .02              .02
                                               --------------------------------
         Adjusted net (loss) income                    $ (.07)           $ .04
                                               ================================
         Diluted earnings per share:
         Reported net (loss) income                    $ (.09)           $ .02
         Add back: Goodwill amortization                  .02              .02
                                               --------------------------------
         Adjusted net (loss) income                    $ (.07)           $ .04
                                               ================================

     Further, on October 1, 2002, Fuel Tech completed its annual fair value
measurement test, and there was no evidence of impairment.

     Other intangibles, which are included with other assets on the consolidated
balance sheet, consist principally of third-party costs related to the
development of patent rights. These costs are being amortized by the
straight-line method over a period of 10 years from the date of patent issuance.
Patent maintenance fees are charged to operations as incurred. Further, the
estimated amortization expense related to Fuel Tech's intangible patent assets
is expected to approximate $40,000 per year for the five-year period ending
December 31, 2007.

Equipment

     Equipment is stated on the basis of cost. Provisions for depreciation are
computed by the straight-line method, using estimated useful lives as follows:

     Laboratory equipment.........................................  5-10 years
     Furniture and fixtures.......................................  3-10 years
     Computer equipment and software..............................   3-5 years
     Field equipment..............................................   3-4 years
     Vehicles.....................................................     3 years


Accounting for the Impairment of Long-Lived Assets

     Fuel Tech reviews long-lived assets and certain intangible assets for
impairment when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. In the event the sum of the expected
undiscounted future cash flows resulting from the use of the asset is less than
the carrying amount of the asset, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. The impact of such
losses on Fuel Tech was $90,000 and $139,000 for the years ended December 31,
2002 and 2001, respectively.


                                       22
<PAGE>

Revenue Recognition

     Fuel Tech uses the percentage of completion method of accounting for
certain long-term equipment construction and license contracts. Under the
percentage of completion method, sales and gross profit are recognized as work
is performed based on the relationship between actual engineering hours and
equipment construction costs incurred and total estimated hours and costs at
completion. Sales and gross profit are adjusted for revisions in completion
estimates and contract values in the period in which the facts giving rise to
the revisions become known. Revenues from the sales of chemical products are
recorded when title transfers, either at the point of shipment or at the point
of destination, depending on the contract with the customer.

 Distribution Costs

     Fuel Tech classifies shipping and handling costs in cost of sales in the
consolidated statement of operations.

 Stock-Based Compensation

     Fuel Tech accounts for stock option grants in accordance with Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under Fuel Tech's current plans, options may be granted at not less
than the fair market value on the date of grant, and therefore, no compensation
expense is recognized for the stock options granted.

     If compensation expense for Fuel Tech's plans had been determined based on
the fair value at the grant dates for awards under its plans, consistent with
the method described in SFAS No. 123, Fuel Tech's net income (loss) and income
(loss) per share would have been adjusted as follows for the years ended
December 31:

<TABLE>
<CAPTION>


- ---------------------------- ------------------------- ----------------- ------------------ ----------------
(in thousands)                                               2002              2001              2000
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
<S>                          <C>                       <C>               <C>                <C>
Net income (loss)
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             As reported                         $3,057           $(1,633)             $415
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             As adjusted                          2,083            (2,329)             (103)
- ---------------------------- ------------------------- ----------------- ------------------ ----------------

- ---------------------------- ------------------------- ----------------- ------------------ ----------------
Basic and diluted income
(loss) per share:
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             Basic - as reported                   $.16             $(.09)             $.02
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             Basic - as adjusted                   $.11             $(.13)            $(.01)
- ---------------------------- ------------------------- ----------------- ------------------ ----------------

- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             Diluted - as reported                 $.14             $(.09)             $.02
- ---------------------------- ------------------------- ----------------- ------------------ ----------------
                             Diluted - as adjusted                 $.09             $(.13)            $(.01)
- ---------------------------- ------------------------- ----------------- ------------------ ----------------

</TABLE>

     In accordance with the provisions of SFAS No. 123, the "As adjusted"
disclosures include only the effect of stock options granted after 1994. The
application of the "As adjusted" disclosures presented above are not
representative of the effects SFAS No. 123 may have on such operating results in
future years due to the timing of stock option grants and considering that
options vest over a period of immediately to five years.

Basic and Diluted Earnings Per Common Share

     Basic earnings per share excludes the dilutive effects of stock options and
of the nil coupon non-redeemable convertible unsecured loan notes (see Note 4).
Diluted earnings per share includes the dilutive effect of the nil coupon
non-redeemable convertible unsecured loan notes and of stock options and
warrants. The following table sets forth the weighted-average shares used at
December 31 in calculating earnings per share (in thousands):
<TABLE>
<CAPTION>

- -------------------------------------------------- -------------------------- ------------------------ ---------------------
                                                            2002                      2001                    2000
- -------------------------------------------------- -------------------------- ------------------------ ---------------------
<S>                                                <C>                        <C>                      <C>
Basic weighted-average shares                                       19,350                   18,592                18,396
- -------------------------------------------------- -------------------------- ------------------------ ---------------------
Conversion of unsecured loan notes                                      85                        -                   483
- -------------------------------------------------- -------------------------- ------------------------ ---------------------
Unexercised options and warrants                                     3,002                        -                   742
- -------------------------------------------------- -------------------------- ------------------------ ---------------------
Diluted weighted-average shares                                     22,437                   18,592                19,621
- -------------------------------------------------- ========================== ======================== =====================

</TABLE>


                                       23
<PAGE>

2. TAXATION

     At December 31, 2002, FTI had tax losses available for offset against
future years' earnings of approximately $32.4 million in the United States. For
financial statement purposes, a valuation allowance has been recorded to offset
the tax benefit of these carryforwards. Under the provisions of the United
States Tax Reform Act of 1986, utilization of Fuel Tech's United States federal
income tax loss carryforwards may be limited should ownership changes exceed 50%
within a three-year period. The United States federal tax loss carryforwards
expire as follows (in thousands):

                           2003                $14,925
                           2004                  4,639
                           2005                  5,467
                           2006                  1,987
                           2007                  2,325
                           2008                  1,480
                           2009                    220
                           2010                    309
                           2011                    884
                           2012                     40
                           2016                    117
                                               -------
                                               $32,393

     The components of income (loss) before taxes for the years ended December
31 are as follows (in thousands):

<TABLE>
<CAPTION>

- --------------------------------------------- ------------------- ------------------- --------------------
Origin of income (loss) before taxes                 2002                2001                2000
- --------------------------------------------- ------------------- ------------------- --------------------
<S>                                           <C>                 <C>                 <C>
United States of America                                  $3,689              $  (9)              $ 1,211
- --------------------------------------------- ------------------- ------------------- --------------------
Foreign                                                     (782)            (1,738)                 (796)
- --------------------------------------------- ------------------- ------------------- --------------------
Income (loss) before taxes                                $2,907            $(1,747)                $ 415
- --------------------------------------------- =================== =================== ====================

</TABLE>

     A reconciliation between the (benefit) provision for income taxes
calculated at the U.S. federal statutory income tax rate and the consolidated
(benefit) provision in the consolidated statements of operations for the years
ended December 31 is as follows (in thousands):

<TABLE>
<CAPTION>

- ------------------------------------ ---------------- --------------- ----------------
                                           2002            2001             2000
- ------------------------------------ ---------------- --------------- ----------------
<S>                                  <C>              <C>             <C>
Provision (benefit) at the U.S.           $ 1,040       $  (611)      $   145
federal statutory rate
- --------------------------------------------------------------------------------------
Foreign losses without tax benefit            274           608           444
- --------------------------------------------------------------------------------------
Valuation allowance adjustment             (1,314)            -          (424)
- --------------------------------------------------------------------------------------
State income taxes                           (150)            -          (207)
- --------------------------------------------------------------------------------------
Foreign (benefit) income taxes                  -          (114)           25
- --------------------------------------------------------------------------------------
Other                                           -             3            17
- --------------------------------------------------------------------------------------
(Benefit) provision for income taxes      $  (150)      $  (114)         $  -
- ------------------------------------------============================================

</TABLE>


     Fuel Tech recorded an income tax benefit of $150,000 in 2002, which
 represented a reduction in the reserve for prior years' state income tax
 refunds receivable, as the refunds were collected in 2002. The benefit of
 $114,000 recorded in 2001 was related to its Italian subsidiary.

     The reduction in the valuation allowance in 2002 and 2000 results primarily
from the utilization of tax loss carryforwards where a valuation allowance had
previously been provided. The state income tax credit in 2000 results from
recording the benefit of net operating losses generated in prior years, which
were carried forward and applied at the state level.

     Temporary differences arising from treating income and expense items for
financial reporting purposes differently than for tax return purposes are not
material.


                                          24
<PAGE>

3. COMMON STOCK

     At December 31, 2002, Fuel Tech had 19,613,817 Common Shares outstanding,
with an additional 84,787 shares reserved for issuance upon conversion of the
nil coupon non-redeemable convertible unsecured loan notes (see Note 4) and
2,207,000 shares reserved for issuance upon the exercise of stock options,
1,220,625 of which are currently exercisable (see Note 5).

4. NIL COUPON NON-REDEEMABLE CONVERTIBLE UNSECURED LOAN NOTES

     At December 31, 2002 and 2001, Fuel Tech had $533,500 and $2,658,500
principal amount of nil coupon non-redeemable convertible unsecured perpetual
loan notes (the "Loan Notes") outstanding, respectively. The Loan Notes are
convertible at any time into shares of Fuel Tech's common stock at rates of
$6.50 or $11.43 per share. The Loan Notes bear no interest and have no maturity
date. They are generally repayable only in the event of Fuel Tech's dissolution
and, accordingly, have been classified within shareholders' equity in the
accompanying balance sheet.

     During 2002 and 2001, approximately $2,125,000 and $1,300,000 principal
amount of Loan Notes were converted into 185,937 and 200,000 shares of Fuel
Tech's common stock, respectively.

5. STOCK OPTIONS AND WARRANTS

     Fuel Tech has granted stock options under the 1993 Incentive Plan ("1993
Plan"). Under the 1993 Plan, awards may be granted to participants in the form
of Non-Qualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Awards, Bonuses or other forms of
share-based or non-share-based awards or combinations thereof. Participants in
the 1993 Plan may be such of Fuel Tech's directors, officers, employees,
consultants or advisors (except consultants or advisors in capital-raising
transactions) as the directors determine are key to the success of Fuel Tech's
business. The amount of shares that may be issued or reserved for awards to
participants under a 1998 amendment to the 1993 Plan is 12.5% of outstanding
shares. In 2002, 2001 and 2000, 424,000, 472,500 and 406,000 options,
respectively, were granted to employees and directors.


                                          25
<PAGE>

     The Black-Scholes option-pricing model was used to estimate the fair value
of employee stock options for the FAS No. 123 proforma disclosure in Note 1.
This model was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In addition,
option-pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Because Fuel Tech's employee
stock options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

     The fair value of each option grant, for "As adjusted" disclosure purposes
in Note 1, was estimated on the date of grant using the modified Black-Scholes
option pricing model with the following weighted-average assumptions:

                                        2002          2001          2000
                                     ------------------------------------
Expected dividend yield                0.00%          0.00%         0.00%
Risk-free interest rate                2.60%          4.40%         5.10%
Expected volatility                    74.7%         115.1%         96.2%
Expected life of option              4 years        4 years       4 years

     The following table presents a summary of Fuel Tech's stock option activity
and related information for the years ended December 31:

<TABLE>
<CAPTION>

                                                2002                           2001                           2000
                                                      Weighted-                        Weighted-                      Weighted
                                      Number of        Average        Number of         Average        Number of      Average
                                       Options      Exercise Price     Options        Exercise Price    Options     Exercise Price
                                   -----------------------------------------------------------------------------------------------
<S>                                <C>              <C>               <C>             <C>              <C>          <C>
Outstanding at beginning of year       2,155,500      $  2.34         2,052,000          $  2.34         1,874,500    $   2.39
Granted                                  424,000         5.82           472,500             2.15           406,000        2.10
Exercised                               (243,250)        2.20          (215,500)            1.89          (192,000)       1.75
Expired or forfeited                    (129,250)        6.23          (153,500)            2.71           (36,500)       5.38
                                   -----------------------------------------------------------------------------------------------
Outstanding at end of year             2,207,000      $  2.71         2,155,500          $  2.34         2,052,000    $   2.34
                                   -----------------------------------------------------------------------------------------------

Exercisable at end of year             1,220,625      $  2.30         1,086,250          $  2.66           965,500    $   2.73
Weighted -average fair value of
  options granted during the year                     $  3.31                            $  1.66                      $   1.47

</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2002:

<TABLE>
<CAPTION>

                         Options Outstanding                                      Options Exercisable
- -------------------------------------------------------------------------------------------------------------------------
                                          Weighted-Average        Weighted-                                  Weighted-
   Range of             Number of            Remaining             Average             Number of              Average
Exercise Prices          Options          Contractual Life      Exercise Price          Options            Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S>                     <C>               <C>                   <C>                   <C>                  <C>
$1.375 - $3.38           1,733,000           6.20 years             $   1.92           1,100,625             $   1.98

$3.595 - $6.27             474,000           9.18 years             $   5.59             120,000             $   5.15
                     --------------                                                --------------
$1.375 - $6.27           2,207,000           6.84 years             $   2.71           1,220,625             $   2.30
- -------------------------------------------------------------------------------------------------------------------------

</TABLE>

     In addition to the above, Fuel Tech has 2,710,000 warrants outstanding to
purchase additional shares of Fuel Tech's common stock at an exercise price of
$1.75. The warrants expire on April 30, 2008.


                                       26
<PAGE>

6. COMMITMENTS

Operating Leases

     Fuel Tech leases office space, autos and certain equipment under agreements
expiring on various dates through 2009. Future minimum lease payments at
December 31, 2002, are as follows (in thousands):

         ----------------------         ----------------------
           Year of Payment                    Amount
         ----------------------         ----------------------
                 2003                           $347
         ----------------------         ----------------------
                 2004                            248
         ----------------------         ----------------------
                 2005                            182
         ----------------------         ----------------------
                 2006                            186
         ----------------------         ----------------------
                 2007                            180
         ----------------------         ----------------------
              thereafter                         224
         ----------------------         ----------------------

     For the years ended December 31, 2002, 2001 and 2000, rent expense
approximated $584,000, $581,000 and $556,000, respectively.

Performance Guarantees

     The majority of Fuel Tech's long-term equipment construction contracts
contain language guaranteeing that the performance of the system that is being
sold to the customer will meet specific criteria. On occasion bank performance
guarantees and letters of credit are issued to the customer in support of the
construction contracts as follows:

     -    in support of the warrantee period defined in the contract, or
     -    in support of the system performance criteria that are defined in the
          contract

     As of December 31, 2002, Fuel Tech has outstanding bank performance
guarantees and letters of credit in the amount of $712,000 in support of
equipment construction contracts that have not completed their final acceptance
test or that are still operating under a warranty period. Management of Fuel
Tech believes that these projects will be successfully completed and that there
will not be a materially adverse impact on Fuel Tech's operations from these
bank performance guarantees and letters of credit.

7. DEBT FINANCING

     Fuel Tech, Inc. (FTI) has a $10.0 million revolving credit facility
expiring July 31, 2004, which is collateralized by all personal property owned
by FTI. FTI can use this facility for cash advances and standby letters of
credit. Cash advances under this facility bear interest at the bank's prime
rate, or at an optional rate that can be selected by FTI which is based on the
bank's Interbank Offering Rate plus 2.25%.

     Also, FTI has a term loan agreement with the same bank for a total
principal balance of $4.5 million. The principal balance was to be repaid in
quarterly installments of $225,000 commencing on December 31, 1999, with a final
principal payment of $1,575,000 due on January 31, 2003. Further, FTI entered
into an interest rate swap transaction that fixed the rate of interest at 8.91%
on approximately 50% of the outstanding principal balance during the term of the
loan. This swap expired on October 22, 2002. The remaining principal balance
bears interest at the bank's prime rate, or an optional rate that can be
selected by FTI, and is based on the bank's Interbank Offering Rate plus 2.25%.
The borrowings under this facility are collateralized by all personal property
owned by FTI.

     The $10.0 million revolving credit facility was obtained via an amendment,
effective December 31, 2002, that increased the credit facility from $6.0
million to $10.0 million and extended the agreement until July 31, 2004. The
term loan was paid in full on January 31, 2003 using funds from the line of
credit.

     At December 31, 2002, the bank had provided standby letters of credit,
predominantly to customers, totaling approximately $927,000 in connection with
contracts in process. FTI is committed to reimbursing the issuing bank for any
payments made by the bank under these letters of credit. At December 31, 2002,
there were no cash borrowings under the revolving credit facility and
approximately $9,073,000 was available for utilization.

     The carrying amount of debt approximates fair value at December 31, 2002.

     Interest payments were $156,000, $250,000 and $373,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.


                                       27
<PAGE>

8. RELATED PARTY TRANSACTIONS

     Fuel Tech has a 15.2% common stock ownership interest in Clean Diesel
Technologies, Inc. (CDT), at December 31, 2002. Fuel Tech is precluded from
selling its interest in CDT except pursuant to a registration statement, or in
an exempt private placement within the limitations of Rule 144 of the Securities
and Exchange Commission.

     On August 3, 1995, Fuel Tech signed a Management and Services Agreement
with CDT. According to the agreement, CDT is to reimburse Fuel Tech for
management, services and administrative expenses incurred by Fuel Tech on behalf
of CDT. Additionally, Fuel Tech charges CDT an additional 3% of such costs
annually.

     For the years ended December 31, 2002, 2001 and 2000, $69,000, $73,000 and
$78,000, respectively, was charged to CDT as a management fee.

     On November 11, 1998, a pre-existing $495,000 demand note, with interest at
8%, and a $500,000 bridge loan and interest thereon of $20,000 were converted
into 2,029 shares of Series A Convertible Preferred stock in CDT. Each preferred
share was convertible into 333.33 shares of CDT common stock. In April of 2000,
Fuel Tech purchased 300 additional convertible preferred shares of CDT for
$225,000, which had the same convertible provisions noted above. As a result of
the continuing losses incurred by CDT, Fuel Tech recorded a loss of $225,000 in
2000 based on its pro-rata share of CDT's operating results for the year. The
CDT common and preferred stock has no carrying value in Fuel Tech's balance
sheet as of December 31, 2002 and 2001, and the 15.2% investment is being
accounted for using the cost method.

     In November 2000, Fuel Tech committed to lend CDT $250,000 as part of a
$1.0 million loan facility between CDT, Fuel Tech and other entities. In
December 2000, Fuel Tech loaned CDT $125,000 as its share of the first $500,000
draw down under the terms of the loan facility. This amount was included in the
prepaid expenses and other current assets line item on the consolidated balance
sheet as of December 31, 2000. In March 2001, Fuel Tech loaned CDT $125,000 as
its share of the second $500,000 draw down under the terms of the loan facility.
The principal balance on both loan installments, with accrued interest at 10%
per annum, was payable on May 14, 2002. For its participation in the loan
facility and for its $250,000 contribution, Fuel Tech received 25,000 warrants
to purchase CDT common stock. The warrants have an exercise price of $2.00 and
can be exercised on or before November 14, 2010. Because of the continuing
losses incurred by CDT, the carrying value of the loans was reduced to $0 as of
December 31, 2001 based on Fuel Tech's pro-rata share of the losses incurred.
Consequently, a $250,000 loss was recorded during 2001. In the first quarter of
2002, CDT repaid the entire amount of the loans plus interest. The payment of
the $250,000 principal value of the loan was recorded as income in the first
quarter of 2002, along with approximately $24,000 in interest income. The value
assigned to these warrants on the consolidated balance sheet at December 31,
2002 and 2001, is not significant.

     Pursuant to an assignment agreement of certain technology to CDT, Fuel Tech
is due royalties from CDT of 2.5% of CDT's annual revenue from sales of CDT's
Platinum Fuel Catalyst, commencing in 1998. The royalty obligation expires in
2008. CDT may terminate the royalty obligation to Fuel Tech by payment of $12
million commencing in 1998 and declining annually to $1,090,910 in 2008. CDT as
assignee and owner will maintain the technology at its own expense. To date,
Fuel Tech has received approximately $9,000 in royalties. Fuel Tech intends to
record royalties from CDT on a cash basis.

     On April 30, 1998, Fuel Tech entered into an agreement with American Bailey
Corporation (ABC) for it to provide certain management and consulting services
to Fuel Tech. Principals of ABC currently own 24% of Fuel Tech's Common Shares
and also own warrants to purchase an additional 2.7 million shares, which expire
on April 30, 2008. No fees were to be payable under the agreement for the first
24 months. This agreement was amended in 1999 to extend its term to April 30,
2002, and provide for the payment of a management fee of $10,417 per month
commencing September 1, 1999, through May 1, 2000, and $20,833 per month until
the termination of the agreement. The agreement was further amended effective
May 1, 2002 to increase the management fee to $29,167 per month until the
termination of the agreement as of April 30, 2004. Ralph Bailey, Chairman and
CEO of Fuel Tech, is Chairman of ABC.

     In the second quarter of 2000 Fuel Tech announced that it would concentrate
its European resources in its Italian company, Fuel Tech Srl, and shut down Fuel
Tech GmbH, a wholly owned subsidiary in Germany. As part of the restructure,
Fuel Tech GmbH recorded a charge in 2000 of $528,000 related to the closure of
the entity. The charge included accruals of $343,000 primarily for severance
obligations for four employees, lease termination costs and other costs related
to the closure of the entity. This charge was recorded as a reduction to
operating income in the consolidated statement of operations. As of June 30,
2002, all closing costs, which approximated the accrual balance, have been paid.

     Also as part of the restructure, Fuel Tech GmbH's NOxOUT chemical business
was sold to a new entity in Germany (Fuel Tech CS GmbH) in which Fuel Tech holds
a 49% ownership interest that was acquired for $116,000. The selling price was
dependent on the future results of the chemical business, but was not to be less
than 1,250,000 Deutchmarks (approximately $600,000), paid out over three years.
A gain on this transaction of $269,000 was recorded in other income and expense
in the 2000 consolidated statement of operations.


                                       28
<PAGE>


9. DEFINED CONTRIBUTION PLAN

     Fuel Tech has a retirement savings plan available for all U.S. employees
who have met minimum length-of-service requirements. Fuel Tech's contributions
are determined based upon amounts contributed by Fuel Tech's employees with
additional contributions made at the discretion of Fuel Tech's Board of
Directors. Costs related to this plan were $180,000, $150,000 and $289,000 in
2002, 2001 and 2000, respectively.

10. BUSINESS SEGMENT, GEOGRAPHIC AND QUARTERLY FINANCIAL DATA

BUSINESS SEGMENT FINANCIAL DATA

     Fuel Tech's business is organized into two operating segments providing air
pollution control chemicals and equipment and software. The software segment
does not meet the materiality test for disclosure purposes.

     Information concerning Fuel Tech's operations by geographic area is
provided below. Operating earnings represent sales less cost of products sold
and operating expenses. Foreign operating expenses include direct expenses
incurred outside of the United States of foreign corporations controlled by Fuel
Tech plus an allocation of domestic selling and general expenses directly
related to the foreign operations. Assets are those directly associated with
operations of the geographic area.

<TABLE>
<CAPTION>

For the years ended December 31            2002               2001               2000
<S>                                    <C>                <C>                <C>
Revenues:
    United States                      $ 28,724,000       $ 13,246,000       $ 17,550,000
    Foreign                               3,903,000          4,426,000          4,356,000
                                       ------------       ------------       ------------
                                       $ 32,627,000       $ 17,672,000       $ 21,906,000
                                       ============       ============       ============

Operating (Loss) Earnings:
    United States                      $  2,654,000       $ (1,143,000)      $  1,506,000
    Foreign                                  54,000            (54,000)          (662,000)
                                       ------------       ------------       ------------
                                       $  2,708,000       $ (1,197,000)      $    844,000
                                       ============       ============       ============

December 31                                2002               2001               2000
Assets:
    United States                      $ 24,393,000       $ 18,952,000       $ 19,640,000
    Foreign                               1,476,000          1,376,000          3,449,000
                                       ------------       ------------       ------------
                                       $ 25,869,000       $ 20,328,000       $ 23,089,000
                                       ============       ============       ============

</TABLE>


                                            29
<PAGE>

QUARTERLY FINANCIAL DATA

Set forth below is the unaudited quarterly financial data for the fiscal years
ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>

For the quarter ended:                             March 31       June 30   September 30   December 31
(in thousands, except share data)
<S>                                                <C>          <C>         <C>            <C>
2002:
    Net sales                                      $  5,221     $  8,021      $  8,033       $ 11,352
    Cost of sales                                     2,583        4,130         4,462          7,057
    Net income                                          312        1,029           379          1,337
    Net income per common share:
       Basic                                       $    .02     $    .05      $    .02       $    .07
       Diluted                                     $    .01     $    .05      $    .02       $    .06

2001:
    Net sales                                      $  3,155     $  4,741      $  4,194       $  5,582
    Cost of sales                                     1,717        2,225         1,984          3,070
    Net (loss) income                                (1,042)          71          (256)          (406)
    Net (loss) income per common share:
       Basic                                       $   (.06)    $      -      $   (.01)      $   (.02)
       Diluted                                     $   (.06)    $      -      $   (.01)      $   (.02)

</TABLE>


                                       30
<PAGE>

11. PARENT COMPANY FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

Balance Sheets (at December 31)                                         2002            2001
                                                                    ------------     ------------
<S>                                                                 <C>              <C>
Assets:

    Receivable and other current assets                             $     72,000     $     34,000
    Investments in subsidiaries                                       16,915,000       13,319,000
                                                                    ------------     ------------
    Total assets                                                    $ 16,987,000     $ 13,353,000
                                                                    ============     ============

 Liabilities and shareholders' equity

    Liabilities

    Accounts payable and accrued expenses                                182,000          218,000

    Shareholders' equity                                              16,805,000       13,135,000
                                                                    ------------     ------------
    Total liabilities and shareholders' equity                      $ 16,987,000     $ 13,353,000
                                                                    ============     ============

<CAPTION>

Statements of Operations (for the years ended December 31)              2002             2001             2000
                                                                    ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>
    Loss from operations                                            $   (710,000)    $   (952,000)    $   (750,000)
    Interest and other income, net                                       222,000          129,000                -
    Income (loss) from equity investment in subsidiary                 3,545,000         (810,000)         335,000
                                                                    ------------     ------------     ------------
    Net income (loss)                                               $  3,057,000     $ (1,633,000)    $   (415,000)
                                                                    ============     ============     ============

<CAPTION>

Statements of Cash Flow (for the years ended December 31)               2002             2001             2000
                                                                    ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>
Operating activities:
    Net cash used in operating activities                           $   (757,000)    $   (521,000)    $   (511,000)
                                                                    ------------     ------------     ------------

Investing activities:
    Investment in and loans to CDT                                       250,000         (125,000)        (350,000)
    Investment in Fuel Tech CS GmbH                                            -                -         (116,000)
                                                                    ------------     ------------     ------------
    Net cash provided by (used in) investing activities                  250,000         (125,000)        (466,000)

Financing activities:
    Dividend from FTI                                                    (28,000)         280,000          638,000
    Exercise of stock options                                            535,000          406,000          339,000
    Purchase of treasury stock/other                                           -          (40,000)               -
    Purchase and retirement of nil coupon loan notes                           -                -                -
                                                                    ------------     ------------     ------------
    Net cash provided by investing activities                            507,000          646,000          977,000

    Net decrease in cash and cash equivalents                                  -                -                -

    Cash and cash equivalents at beginning of period                           -                -                -
                                                                    ------------     ------------     ------------
    Cash and cash equivalents at end of period                      $          -     $          -     $          -
                                                                    ============     ============     ============

</TABLE>

Basis of Presentation:

     In the parent company financial statements, Fuel Tech's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. Fuel Tech's share of net income of
its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company financial statements should be read in
conjunction with Fuel Tech's consolidated financial statements.


                                       31
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required by this Item will be set forth under the captions
"Election of Directors," "Directors and Executive Officers of Fuel Tech,"
"Compensation Committee," "Audit Committee," and "Financial Experts" in Fuel
Tech's Proxy Statement related to the 2003 Annual General Meeting of
Shareholders (the `Proxy Statement") and is incorporated by reference.

     Fuel Tech has adopted a Code of Ethics and Business Conduct (the "Code")
that applies to all employees, officers and directors, including the Chief
Executive Officer, Chief Financial Officer and Controller. A copy of the Code is
available free of charge to any person on written or telephone request to Fuel
Tech's Investor Relations at the address or telephone number set out in Fuel
Tech's Annual Report to Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

     Information required by this Item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated by reference
excluding, however, the information under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph," which is not
incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required by this Item will be set forth under the caption
"Principal Shareholders and Stock Ownership of Management" in the Proxy
Statement and is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information required by this Item will be set forth under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated by reference.



                                       32
<PAGE>

                                     PART IV


Item 14. CONTROLS AND PROCEDURES

     Fuel Tech maintains disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in Fuel
Tech's filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Fuel Tech's principal executive and
financial officers have evaluated Fuel Tech's disclosure controls and procedures
within 90 days of the filing of this Annual Report on Form 10-K and concluded
that such disclosure controls and procedures are effective for the purpose for
which they were designed.

     Subsequent to the date of such evaluation, there were no significant
changes in internal controls or other factors that could significantly affect
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K


(a)     (1) Financial Statements

     The financial statements identified below and required by Part II, Item 8
of this Form 10-K are set forth above.

         Report of Independent Auditors
         Consolidated Balance Sheets as of December 31, 2002 and 2001
         Consolidated Statements of Operations for Years Ended December 31,
         2002, 2001 and 2000
         Consolidated Statements of Shareholders' Equity for the Years Ended
         December 31, 2002, 2001 and 2000
         Consolidated Statements of Cash Flows for the Years Ended December 31,
         2002, 2001 and 2000 Notes to Consolidated Financial Statements

         (2) Financial Statement Schedules

     Schedules have been omitted because of the absence of the conditions under
which they are required or because the required information where material is
shown in the financial statements or the notes thereto.

         (3) Exhibits
<TABLE>
<CAPTION>

<S>           <C>
+    1.0      Articles of Association of Fuel-Tech N.V. (in Dutch and English) as amended through April 27, 1998
*    2.1      Instrument Constituting US $19,200,000 Nil Coupon Non-Redeemable Convertible Unsecured Loan Notes
                 of Fuel-Tech N.V., dated December 21, 1989
*    2.2      First Supplemental Instrument Constituting US $3,000,000 Nil Coupon Non-Redeemable Convertible
                 Unsecured Loan Notes of Fuel-Tech N.V., dated July 10, 1990
**   2.3      Instrument Constituting US $6,000,000 Nil Coupon Non-Redeemable Convertible Unsecured Loan Notes of
                 Fuel-Tech N.V., dated March 12, 1993
**   2.4      Form of Warrants issued April 30, 1998 evidencing right to purchase 3 million shares of Fuel-Tech
                 N.V. common stock.
*    3.1      Form of Indemnity Agreement between Fuel-Tech N.V. and directors and officers
*    3.2      Fuel Tech, Inc. Form of 1992 Substitute Stock Option Agreement
*    3.3      Fuel-Tech N.V. Form of 1992 Substitute Stock Option Agreement
*    3.4      Fuel-Tech N.V. Form of 1993 Stock Option Agreement as amended through August 3, 1999
&    3.5      The 1993 Incentive Plan of Fuel-Tech N.V. as amended through August 3, 1999
*    3.6      License Implementation Agreement dated June 10, 1991 among NFT, Nalco Fuel Tech, B.V., and Foster
                 Wheeler Energy Corporation
*    3.7      License Implementation Agreement dated April 23, 1991 among NFT, Nalco Fuel Tech, B.V., and R-C
                 Environmental Services & Technologies, a division of Research Cottrell, Inc.
*    3.8      License Implementation Agreement dated December 20, 1990 between NFT and RJM Corporation
*    3.9      License Implementation Agreement dated May 22, 1991 among NFT, Nalco Fuel Tech, B.V., and
                 Wheelabrator Air Pollution Control, Inc.
*    3.10     Agreement dated July 3, 1990 between NFT and Arcadian Corporation
*    3.11     License Agreement dated September 12, 1991 between NFT and BP Chemicals Inc.
*    3.12     Agreement dated November 5, 1990 between NFT and Cargill, Incorporated
*    3.13     Agreement dated August 30, 1990 between NFT and Nitrochem, Inc.
*    3.14     License Agreement dated December 27, 1990 between NFT and Union Oil Company of California dba Unocal
*    3.15     Agreement dated September 30, 1990 between NFT and W.H. Shurtleff Company
**   3.16     Securities Purchase Agreement dated as of March 23, 1998, between Fuel-Tech N.V., and the several
                 Investors signatory thereto, including exhibits.

</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>

<S>           <C>
**  3.17      Purchase Agreement dated as of March 23, 1998, between Nalco FT, Inc., Nalco Chemical Company and
                 Fuel Tech, Inc., including exhibits
#&  3.18      License Agreement dated November 18, 1998 between The Gas Technology Institute and Fuel Tech, Inc.
                 relating to the FLGR Process
#&  3.19      Amendment No. 1, dated February 28, 2000, to License Agreement of November 18, 1998 between The Gas
                 Technology Institute and Fuel Tech, Inc.
o   3.20      The Amended and Restated Business Loan Agreement dated as of August 31, 1999 between Bank of America,
                 National Association and FTI; as amended through December 31, 2002
oo  19.2      Those portions of the Proxy Statement to be distributed to Shareholders of Fuel Tech for the 2003 Annual
                 General Meeting of Shareholders of Fuel-Tech N.V. specifically incorporated by reference into this
                 Annual Report on Form 10-K.
o   23.1      Consent of Ernst & Young LLP

</TABLE>

*    Filed with Registration Statement on Form 20-F, No. 000-21724 of August 26,
     1993, as amended
**   Filed with Registrant's Report on Form 6-K for the month of March 1998
+    Filed with Registrant's Report on Form 20-F for the year 1997
o    Filed herewith
oo   To be filed with the Registrant's definitive proxy material for
     its 2003 Annual General Meeting
#    Confidential information removed and filed separately
&    Filed with Registrant's report on Form 10-K for the year 1999

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by Fuel Tech during the fourth quarter of
2002.



                                       34
<PAGE>



                          SIGNATURES AND CERTIFICATIONS

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

         The undersigned in their capacities as Chief Executive Officer and
Chief Financial Officer of the Registrant do hereby certify that:

         (i) this report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

         (ii) information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant as of, and for, the periods presented in the report.


Date: March 14, 2003         By: /s/ Ralph E. Bailey
                                 -------------------
                             Ralph E. Bailey
                             Chairman, Managing Director
                             and Chief Executive Officer


Date: March 14, 2003         By: /s/ Scott M. Schecter
                                 ---------------------
                             Scott M. Schecter
                             Chief Financial Officer,
                             Vice President and
                             Treasurer

I, Ralph E. Bailey, certify that:

1. I have reviewed this annual report on Form 10-K of Fuel-Tech N.V.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules l3a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and



                                       35
<PAGE>

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 14, 2003         By: /s/ Ralph E. Bailey
                                 -------------------
                             Ralph E. Bailey
                             Chairman, Managing Director
                             and Chief Executive Officer


I, Scott M. Schecter, certify that:

1. I have reviewed this annual report on Form 10-K of Fuel-Tech N.V.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules l3a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 14, 2003         By: /s/ Scott M. Schecter
                                 ----------------------
                             Scott M. Schecter
                             Chief Financial Officer,
                             Vice President and
                             Treasurer


                                       36
<PAGE>


     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of
Fuel-Tech N.V. and in the capacities and on the date indicated.

<TABLE>
<CAPTION>

<S>                                         <C>
       /s/ Ralph E. Bailey                  Chairman, Managing Director and Chief Executive Officer
       -------------------                  (Principal Executive Officer)
            Ralph E. Bailey

       /s/ Scott M. Schecter                Chief Financial Officer, Vice President and Treasurer
       ---------------------                (Principal Financial and Accounting Officer)
            Scott M. Schecter

       /s/ Douglas G. Bailey                Managing Director
       ---------------------
            Douglas G. Bailey

       /s/ Thomas J. Shaw                   Managing Director
       ------------------
            Thomas J. Shaw

       /s/ Miguel Espinosa                  Managing Director
            Miguel Espinosa

       /s/ Samer S. Khanachet               Managing Director
       ----------------------
            Samer S. Khanachet

       /s/ Charles W. Grinnell              Managing Director, Vice President, General Counsel and Corporate Secretary
       -----------------------
            Charles W. Grinnell

       /s/ John R. Selby                    Managing Director
       ------------------
            John R. Selby

       Tarma Trust Management N.V.          Managing Director
       By: /s/ Robert W. Huyzen
           --------------------
           Robert W. Huyzen
           Managing Director

</TABLE>


                                       37

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.20
<SEQUENCE>3
<FILENAME>b323572_ex3-20.txt
<DESCRIPTION>AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
<TEXT>
<PAGE>


                                                                    Exhibit 3.20

                  AMENDED AND RESTATED BUSINESS LOAN AGREEMENT

         This Amended and Restated Business Loan Agreement dated as of August
31, 1999, is between BANK OF AMERICA, NATIONAL ASSOCIATION (formerly known as
Bank of America National Trust and Savings Association and herein, together with
its successors and assigns, called the "Bank") and FUEL TECH, INC., a
Massachusetts corporation (the "Borrower").

                               W I T N E S E T H:

         WHEREAS, the Bank and the Borrower are parties to a Business Loan
Agreement dated as of July 31, 1998 (the "Original Loan Agreement"); and

         WHEREAS, the Bank and the Borrower desire to amend the Original Loan
Agreement and, in connection therewith, to restate the Original Loan Agreement
in its entirety.

         NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged the Bank and the Borrower agree to amend and restate the Original
Loan Agreement to read in its entirety as set forth below.

1. COMMITMENTS.

On the terms and subject to the conditions of this Agreement, and in reliance
upon the warranties of the Borrower set forth herein and in the other Loan
Documents (as defined in Section 7.7), the Bank agrees as follows:

1.1 LINE OF CREDIT AMOUNT AND TERMS

(a) Line of Credit Amount.

          (i) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line of credit (the
"Line of Credit Commitment") is Three Million Dollars ($3,000,000.00). The
amount available to the Borrower (the "Availability") at any time is Three
Million Dollars ($3,000,000.00). If at any time the total amount of principal
outstanding under the line of credit exceeds this limit, the Borrower will, not
later than two (2) days after demand by the Bank, reduce the total amount
outstanding in order to comply with this limit.

         (ii) This is a revolving line of credit providing for cash advances and
standby letters of credit. During the availability period, the Borrower may
repay principal amounts and reborrow them.


<PAGE>


         (iii) The aggregate principal balance of cash advances outstanding at
any one time may not exceed $3,000,0000 minus outstanding amounts of any letters
of credit issued pursuant to the Line of Credit Commitment set forth in this
Agreement (including amounts drawn on such letters of credit and not yet
reimbursed). For purposes of determining the amount outstanding under any letter
of credit denominated in a currency other than U.S. Dollars (a "Foreign
Currency"), the U.S. Dollar equivalent of such Foreign Currency amount shall be
determined by the Bank from time to time on the basis of the spot rate at which
the Bank offers to purchase such Foreign Currency with U.S. Dollars at
approximately 10:00 am., Chicago, Illinois time on the date of determination.

         (iv) Each advance will be for at least $100,000, or for the amount of
the remaining available line of credit, if less.

         (v) The Borrower agrees not to permit the outstanding principal balance
of advances under the line of credit plus the outstanding amounts of any letters
of credit, including amounts drawn on letters of credit and not yet reimbursed,
to exceed the Commitment.

(b) Availability Period. The line of credit is available between the date of
this Agreement and August 31, 2002 (the "Expiration Date") unless the Borrower
is in default.

(c) Interest Rate.

         (i) Unless the Borrower elects an optional interest rate as described
below, the interest rate is a per annum rate equal to the Reference Rate defined
below.

         (ii) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. The Bank may price
loans to its customers at, above, or below the Reference Rate. Any change in the
Reference Rate will take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Reference Rate.

(d) Optional Interest Rates. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect the optional interest rates listed below
during interest periods of one, two, three or six months. The optional interest
rates shall be subject to the terms and conditions described later in this
Agreement. Any principal amount bearing interest at an optional rate under this
Agreement is referred to as a "Portion." The following optional interest rate is
available: the IBOR Rate plus 2.25 percentage points.


                                       -2-
<PAGE>


(e) Repayment Terms.

         (i) The Borrower will pay interest on September 30, 1999, and then
quarterly thereafter until payment in full of any principal outstanding under
this line of credit.

         (ii) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later than
the Expiration Date.

         (iii) The Borrower may prepay all principal outstanding under this line
of credit in full or in part at any time.

(f) Letters of Credit.

         (i) This line of credit may be used for financing standby letters of
credit with a maximum maturity of 18 months but not to extend later than five
(5) Banking Days prior to the Expiration Date. The standby letters of credit may
include a provision providing that the maturity date will be automatically
extended each year for an additional year unless the Bank gives written notice
to the contrary; provided, however, that each letter of credit must include a
final maturity date which will not be subject to automatic extension.

         (ii) The amount of the letters of credit issued pursuant to the
Commitment set forth in this Agreement outstanding at any one time (including
amounts drawn on such letters of credit and not yet reimbursed) may not exceed
$3,000,000.

         (iii) The Borrower agrees:

                  (1) that any sum drawn under a letter of credit may, at the
         option of the Bank, be added to the principal amount outstanding under
         this Agreement (such principal amount to bear interest and be due as
         described elsewhere in this Agreement);

                  (2) that if there is a default under this Agreement (after
         expiration of all applicable notice and grace periods), it will upon
         demand by the Bank immediately prepay and make the Bank whole for any
         outstanding letters of credit;


                                       -3-
<PAGE>


                  (3) that the issuance of any letter of credit and any
         amendment to a letter of credit is subject to the Bank's written
         approval and must be in form and content satisfactory to the Bank and
         in favor of a beneficiary acceptable to the Bank;

                  (4) to sign the Bank's form Application and Agreement for
         Standby Letter of Credit (a "Letter of Credit Application");

                  (5) to pay any issuance and/or other fees that the Bank
         notifies the Borrower will be charged for issuing and processing
         letters of credit for the Borrower, provided that such fees shall be no
         greater than the amounts charged by the Bank to its customers generally
         in accordance with published schedules of fees as in effect from time
         to time;

                  (6) to allow the Bank to automatically charge its checking
         account for applicable fees, discounts, and other charges; and

                  (7) to pay the Bank a non-refundable fee for each letter of
         credit equal to the greater of (A) 1.00% of the original face amount of
         such letter of credit and (B) $500, payable in advance.

(g) Existing Loans and Letters of Credit. On the effective date of this
Agreement the outstanding principal balance of amounts borrowed by the Borrower
under the Original Loan Agreement (the "Existing Loans") is $0. The Existing
Loans shall continue outstanding under this Agreement, and shall be considered
to be amounts advanced by the Bank under and pursuant to this Agreement for all
purposes of this Agreement and the other Loan Documents. The letters of credit
listed on Schedule 1.1(Q) (the "Existing Letters of Credit") have been
previously issued by the Bank on the application of the Borrower and are
currently outstanding. The Existing Letters of Credit shall continue outstanding
and shall be considered to be letters of credit issued under and pursuant to
this Agreement for all purposes of this Agreement and the other Loan Documents.

1.2 TERM LOAN AND TERMS

(a) Loan Amount. During the availability period described below, the Bank agrees
to provide a term loan to the Borrower in the amount of Four Million Five
Hundred Thousand Dollars ($4,500,000.00) (the "Term Loan Commitment"). The Term
Loan Commitment will expire on the first to occur of the date the term loan is
funded or the last day of the availability period described below.

                                       -4-

<PAGE>


(b) Availability Period. This term loan is available in one disbursement during
the period from the effective date of this Agreement to the date which is thirty
(30) days following the effective date, as long as the Borrower is not in
default.

(c) Interest Rate. Unless the Borrower elects an optional interest rate as
described below, the interest rate is a per annum rate equal to the Reference
Rate.

(d) Optional Interest Rates. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect the optional interest rates listed below
during interest periods of one, two, three or six months. The optional interest
rates shall be subject to the terms and conditions described later in this
Agreement. Any principal amount bearing interest at an optional rate under this
Agreement is referred to as a "Portion." The following optional interest rate is
available: the IBOR Rate plus 2.25 percentage points.

(e) Repayment Terms.

         (i) The Borrower will pay all accrued but unpaid interest on September
30, 1999 and then quarterly thereafter and upon payment in full of the principal
of the loan.

         (ii) The Borrower will repay principal in successive quarterly
installments of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) starting
December 31, 1999. On the Expiration Date the Borrower will repay the remaining
principal balance plus any interest then due.

         (iii) The Borrower may prepay the loan in full or in part at any time
in an amount not less than $500,000 or an integral multiple of $100,000 in
excess thereof. The prepayment will be applied to the most remote payment of
principal due under this Agreement.

2. OPTIONAL INTEREST RATES

2.1 Optional Rates. Each optional interest rate is a rate per year. Interest
will be paid on the last day of each interest period, and if the interest period
is longer than three months, then on the last day of each quarter during the
interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.


                                       -5-
<PAGE>


2.2 IBOR Rate. The election of IBOR Rates shall be subject to the following
terms and requirements:

         (a) The interest period during which the IBOR Rate will be in effect
will be no shorter than 30 days and no longer than one 180 days. The first day
of the interest period must be a Banking Day on which the Bank is also open for
business in California and Chicago, Illinois, and dealing in offshore dollars.
The last day of the interest period will be determined by the Bank using the
practices of the offshore dollar inter-bank market.

         (b) The Borrower shall irrevocably request an IBOR Rate Portion no
later than 10:00 a.m. Chicago time two Banking Days prior to the day on which
the IBOR Rate will take effect with respect to the requested IBOR Rate Portion.

         (c) Each IBOR Rate Portion will be for an amount not less than $100,000
or an integral multiple of $50,000 in excess thereof. Not more than five (5)
IBOR Rate Portions shall be permitted to be outstanding at the same time.

         (d) The "IBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)

                          IBOR Rate =                    IBOR Base Rate
                                                  (1.00 - Reserve Percentage)

                  Where,

                  (i) "IBOR Base Rate" means the interest rate at which the
         Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would
         offer U.S. dollar deposits for the applicable interest period to other
         major banks in the offshore dollar inter-bank market.

                  (ii) "Reserve Percentage" means the total of the maximum
         reserve percentages for determining the reserves to be maintained by
         member banks of the Federal Reserve System for Eurocurrency
         Liabilities, as defined in Federal Reserve Board Regulation D, rounded
         upward to the nearest 1/100 of one percent. The percentage will be
         expressed as a decimal, and will include, but not be limited to,
         marginal, emergency, supplemental, special, and other reserve
         percentages.

         (e) Each prepayment of an IBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement. The prepayment fee
shall be equal to the amount (if any) by which:


                                       -6-
<PAGE>




                  (i) the additional interest which would have been payable
         during the interest period on the amount prepaid had it not been
         prepaid, exceeds

                 (ii) the interest which would have been recoverable by the Bank
         by placing the amount prepaid on deposit in the domestic certificate of
         deposit market, the eurodollar deposit market, or other appropriate
         money market selected by the Bank, for a period starting on the date on
         which it was prepaid and ending on the last day of the interest period
         for such Portion (or the scheduled payment date for the amount prepaid,
         if earlier).

          (f) The Bank will have no obligation to accept an election for an IBOR
Rate Portion if any of the following described events has occurred and is
continuing:

                  (i) Dollar deposits in the principal amount, and for periods
         equal to the interest period, of an IBOR Rate Portion are not available
         in the offshore Dollar inter-bank market; or

                  (ii) the IBOR Rate does not accurately reflect the cost of an
         IBOR Rate Portion.

3. FEES AND EXPENSES

3.1 Fees.

(a) Loan Fee. The Borrower agrees to pay a loan fee in the amount of $_________.
This fee is due on or before the date this Agreement becomes effective.

(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any difference
between the Line of Credit Commitment and the amount of the line of credit it
actually uses, determined by the weighted average credit outstanding during the
specified period. The fee will be calculated at 0.20% per year. The calculation
of credit outstanding will include the undrawn amount of letters of credit. This
fee is due on September 30, 1999 and on the last day of each following fiscal
quarter until the expiration of the availability period.


                                       -7-

<PAGE>


3.2 Expenses. The Borrower agrees to reimburse the Bank upon demand, whether or
not any loan is made under this Agreement, for:

          (a) filing, recording and search fees, reasonable appraisal fees,
reasonable field audit fees and expenses, title report fees, documentation fees,
and other similar fees, costs and expenses incurred by the Bank;

          (b) any reasonable expenses the Bank incurs in the preparation,
negotiation and execution of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any reasonable allocated costs of the Bank's in-house
counsel;

          (c) the reasonable cost of periodic audits and appraisals of the
collateral securing this Agreement, at such intervals as the Bank may reasonably
require. The audits and appraisals may be performed by employees of the Bank or
by independent appraisers; and

          (d) any stamp or other taxes which may be payable with respect to the
execution or delivery of this Agreement and any agreement or instrument required
by this Agreement.

4. COLLATERAL. The Borrower's obligations to the Bank under this Agreement will
be secured by all personal property the Borrower now owns or will own in the
future. Nothing in this Agreement shall be construed to restrict the Borrower
from granting liens on its other assets not securing the Borrower's obligations
to the Bank. The collateral is further defined in a security agreement executed
by the Borrower. In addition, all personal property collateral securing this
Agreement shall also secure all other present and future obligations of the
Borrower to the Bank.

         DISBURSEMENTS, PAYMENTS AND COSTS

5.1 Requests for Credit. Each request for an extension of credit will be made in
writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.

5.2 Disbursements and Payments. Each disbursement by the Bank will be made in
immediately available funds and will be evidenced by records kept by the Bank.
In addition, the Bank may, at its discretion, require the Borrower to sign (a) a
promissory note in the form of Exhibit A-1 (the "Revolving Note"), with
appropriate insertions to evidence the amounts borrowed under the Line of Credit
and (b) a promissory note in the form of Exhibit A-2 (the "Term Note") to
evidence the term loan. Each payment made by the Borrower will be made without
set-off or counterclaim in immediately available funds not later than 2:00 p.m.,
Chicago time, on the date called for under this Agreement at the Bank's office
at 231 South LaSalle Street, Chicago, Illinois 60697. Funds received on any day
after such time will be deemed to have been received on the next Banking Day.
Whenever any payment to be made under this Agreement is stated to be due on a
day which is not a Banking Day, such payment will be made on the next succeeding
Banking Day and such extension of time will be included in the computation of
any interest.


                                       -8-
<PAGE>




5.3 Telephone and Facsimile Authorization.

         (a) The Bank may honor telephone or facsimile instructions for advances
or repayments or for the designation of optional interest rates and facsimile
requests for the issuance of letters of credit given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower, or any
other individual designated by any one of such authorized signers.

         (b) Advances will be deposited in and repayments will be withdrawn from
the Borrower's account number ____________, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.

         (c) The Borrower will provide written confirmation to the Bank of any
telephone or facsimile instructions within five (5) days. If there is a
discrepancy and the Bank has already acted on the instructions, the telephone or
facsimile instructions will prevail over the written confirmation.

         (d) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or facsimile instructions the
Bank reasonably believes are made by any individual authorized by the Borrower
to give such instructions. This indemnity and excuse will survive this
Agreement.

5.4 Direct Debit.

         (a) The Borrower agrees that interest and principal payments and any
fees will be deducted automatically on the due date from the Borrower's checking
account number ____________, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrower.

         (b) The Bank will debit the account on the dates the payments become
due. If a due date does not fall on a Banking Day, the Bank will debit the
account on the first Banking Day following the due date.


                                       -9-
<PAGE>


          (c) The Borrower will maintain sufficient funds in the account on the
dates the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.

5.5 Banking Days. Unless otherwise provided in this Agreement, a "Banking
Day"-is a day other than a Saturday or a Sunday on which the Bank is open for
business in Chicago, Illinois. All payments and disbursements which would be due
on a day which is not a Banking Day will be due on the next Banking Day. All
payments received on a day which is not a Banking Day will be applied to the
credit on the next Banking Day.

5.6 Additional Costs. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:

          (a) any reserve or deposit requirements; and

          (b) any capital requirements relating to the Bank's assets and
commitments for credit.

5.7 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 365/366 day year
and the actual number of days elapsed. Interest on any Portion which bears
interest with reference to the IBOR rate shall be computed on the basis of a 360
day year and the actual number of days elapsed. Installments of principal which
are not paid when due under this Agreement shall continue to bear interest until
paid.

5.8 Default Rate. Upon the occurrence and during the continuation of any default
under this Agreement, principal amounts outstanding under this Agreement will at
the option of the Bank bear interest at a rate which is 2.00 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.

6. CONDITIONS

The following conditions must be satisfied before this Agreement shall become
effective and before the Bank is obligated to extend any credit to the Borrower
under this Agreement:


                                      -10-
<PAGE>


 6.1 Receipt of Documents. The Bank shall have received the following, each of
which must be in form and content acceptable to the Bank:

(a) Authorizations. Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any instrument or agreement required under this
Agreement have been duly authorized.

(b) Governing Documents. A copy of any amendments to the Borrower's articles of
incorporation adopted since the date of the Original Loan Agreement or, if there
are no amendments, a certificate to that effect signed by the President or a
Vice President of the Borrower.

(c) Security Agreement. A signed original security agreement, amending and
restating the security agreement executed and delivered in connection with the
Original Loan Agreement, together with any financing statements which the Bank
requires.

(d) Promissory Notes. Duly executed promissory notes in the forms of Exhibit A-1
and Exhibit A-2.

(e) Subordination Agreement Reaffirmation. The reaffirmation by Fuel-Tech N.V.,
a Netherlands Antilles limited liability company and parent of Borrower ("FTNV")
that the subordination agreement executed and delivered by FTNV in connection
with the Original Loan Agreement, pursuant to which the Borrower's indebtedness
to FTNV is subordinated to the Borrower's obligations to the Bank, continues in
full force and effect.

(f) Legal Opinion. A written opinion from the Borrower's legal counsel, covering
such matters as the Bank may require. The legal counsel and the terms of the
opinion must be acceptable to the Bank.

6.2 Termination of Purchase Transaction Obligations. Documents evidencing and
establishing that (a) all of the Borrower's obligations under or in connection
with the Purchase Agreement dated as of March 23, 1998 (together with all
amendments thereto, the "Purchase Agreement") among the Borrower, Nalco FT, Inc.
and Nalco Chemical Company or under any promissory note or other agreement
imposing an obligation upon the Borrower executed in connection with or pursuant
to the Purchase Agreement (collectively, together with the Purchase Agreement,
the "Purchase Transaction Documents") have been satisfied and (b) that all liens
in favor of Nalco FT, Inc. or Nalco Chemical Company on any assets of Borrower
have been terminated.

6.3 Evidence of Priority. Evidence that security interests and liens in favor of
the Bank on the collateral securing the Borrower's obligations to the Bank are
valid, enforceable, and prior to all others' rights and interests in such
collateral, except those the Bank consents to in writing.


                                      -11-
<PAGE>



6.4 Insurance. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.

6.5 Payment of Fees. Payment of all accrued and unpaid expenses incurred by the
Bank as required by the paragraph entitled "Expenses".

6.6 Good Standing. Certificates of good standing for the Borrower from its state
of formation, from the State of Illinois, and from each other state where the
failure to be in good standing is reasonably likely to have a material adverse
effect on the Borrower or the Borrower and its Subsidiaries taken as a whole.

6.7 Credit Approvals; Due Diligence. The Bank shall have (a) obtained all
required internal credit approvals and (b) completed its due diligence audit of
the business, operations and assets of the Borrower and each of the Borrower's
Subsidiaries, the results of which shall provide the Bank with results and
information which, in its sole determination, are satisfactory to permit it to
enter into the financing transaction described in this Agreement and the other
Loan Documents.

6.8 Conditions to Each Advance or Letter of Credit. Before each extension of
credit, including the first, the following conditions must be satisfied:

(a) Receipt of Documents, Bank must receive the following items, in form and
content acceptable to the Bank:

          (i) a request for an advance or the issuance of a letter of credit
under the line of credit, indicating the amount and, if an advance, the Portion
(if any) that is to bear interest at the IBOR Rate and the requested interest
period for the Portion.

         (ii) Any other relevant information the Bank may request.

(b) Other Conditions. The following additional conditions must be satisfied to
the satisfaction of the Bank:

         (i) there has been no material adverse change in the business,
financial condition, operations, properties or prospects of the Borrower, any
Subsidiary, or the Borrower and its Subsidiaries taken as a whole;

         (ii) before and after giving effect to such extension of credit no
default or event of default under this Agreement or any other Loan Document, or
event which, with the giving of notice or the passage of time, or both, would be
or become an event of default, shall exist;


                                      -12-
<PAGE>


        (iii) there shall have been no material adverse change, or notice of
prospective material adverse change in the nature, extent, scope or cost of the
insurance policies of the Borrower;

         (iv) before and after giving effect to such extension of credit the
representations and warranties in Section 7 and in each other Loan Document
shall be true and correct in all material respects with the same effect as if
then made (unless stated to relate solely to an early date, in which case such
representations and warranties shall be true and correct as of such earlier
date), except for such changes as are specifically permitted hereunder.

6.9 Other Items. Any other items that the Bank reasonably requires.

7. REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.

7.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized. Each of the Borrower's
Subsidiaries (hereafter defined) is duly formed and existing under the laws of
its state of organization or formation. As used in this Agreement, a
"Subsidiary" of the Borrower means, (i) any corporation of which or in which the
Borrower, the Borrower and one or more of its Subsidiaries, or one or more
Subsidiaries of the Borrower directly or indirectly own more than 50% of the
combined voting power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (ii) any partnership, limited liability company,
joint venture or similar entity of which or in which the Borrower, the Borrower
and one or more of its Subsidiaries, or one or more Subsidiaries of the Borrower
directly or indirectly own more than 50$ of the capital interest or profits
interest or (iii) any trust, association or other unincorporated organization of
which or in which the Borrower, the Borrower and one or more of its
Subsidiaries, or one or more Subsidiaries of the Borrower directly or indirectly
own more than 50$ of the beneficial interest.


                                      -13-
<PAGE>


7.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.

7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

7.4 Good Standing. In each state in which the Borrower or any of its
Subsidiaries does business, it or the Subsidiary, as applicable, is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes.

7.5 No Conflicts. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower or any of its Subsidiaries is bound.

7.6 Financial Information. All financial and other information that has been or
will be supplied to the Bank, including the audited financial statements of the
Borrower dated as of December 31, 1998 and the unaudited financial statements of
the Borrower dated June 30, 1999, is:

          (a) sufficiently complete to give the Bank accurate knowledge of the
financial condition of the Borrower and its Subsidiaries, including all material
contingent liabilities; and

          (b) in compliance with all government regulations that apply.

Since the date of the audited financial statements of the Borrower dated
December 31, 1998 provided to the Bank, there has been no material adverse
change in the business, financial condition, operations, properties or prospects
of the Borrower, any of its Subsidiaries, or the Borrower and its Subsidiaries
taken as a whole, excepting insolvency proceedings in Poland with respect to
Borrower's Polish Subsidiary, information as to which has been previously
furnished to the Bank.

7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or to the
Borrower's knowledge threatened against the Borrower, which, if lost, would
impair the financial condition of the Borrower, any of its Subsidiaries, or the
Borrower and its Subsidiaries taken as a whole, or the Borrower's ability to pay
and perform its obligations under this Agreement, any Letter of Credit
Application, any security agreement or other instrument or agreement executed
and delivered by the Borrower in connection with or pursuant to this Agreement
(collectively, the "Loan Documents"), except as have been disclosed in writing
to the Bank.


                                      -14-
<PAGE>


7.8 Collateral. All collateral required in this Agreement or any other Loan
Document is owned by the grantor of the security interest free of any material
title defects or any liens or interests of others, except those (a) permitted
under Section 8.6 of this Agreement or (b) which have been approved by the Bank
in writing.

7.9 Permits, Franchises. The Borrower and each of its Subsidiaries possesses all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged.

7.10 Other Obligations. Neither the Borrower nor any of its Subsidiaries is in
default on any obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or obligation.

7.11 Income Taxes. The Borrower and each of its Subsidiaries has filed all tax
returns required to be filed and has paid, or made adequate provisions for the
payment of, all taxes due and payable pursuant to such returns and pursuant to
any assessments made against it or any of its property. No tax liens for
material amounts have been filed and no material claims are being asserted with
respect to any such taxes. The reserves on the books of the Borrower and its
Subsidiaries in respect of taxes are adequate. The Borrower is not aware of any
proposed assessment or adjustment for additional taxes (or any basis for any
such assessment) which might be material to the Borrower or the Borrower and its
Subsidiaries taken as a whole.

7.12 No Event of Default. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.

7.13 Insurance. The Borrower has obtained, and maintained in effect, the
insurance coverage required in the "Covenants" section of this Agreement.

7 .14 ERISA Plans.

         (a) Each Plan (other than a multiemployer plan) is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law. To the extent applicable, each Plan has received a
favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such qualification.
The Borrower and each of its Subsidiaries has fulfilled its respective
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to each Plan, and has not incurred any liability with respect to
any Plan under Title IV of ERISA.


                                      -15-
<PAGE>


          (b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited transaction or
violation of the fiduciary responsibility rules, with respect to any Plan which
has resulted or could reasonably be expected to result in a material adverse
effect on the Borrower or the Borrower and its Subsidiaries taken as a whole.

         (c) With respect to any Plan subject to Title IV of ERISA:

                  (i) No reportable event has occurred under Section 4043(c) of
         ERISA for which the PBGC requires 30 day notice;

                  (ii) No action by the Borrower or any ERISA Affiliate to
         terminate or withdraw from any Plan has been taken and no notice of
         intent to terminate a Plan has been filed under Section 4041 of ERISA;
         and

                  (iii) No termination proceeding has been commenced with
         respect to a Plan under Section 4042 of ERISA, and no event has
         occurred or condition exists which might constitute grounds for the
         commencement of such a proceeding.

          (d) The following terms have the meanings indicated for purposes of
this Agreement:

                  (i) "Code" means the Internal Revenue Code of 1986, as amended
         from time to time.

                  (ii) "ERISA" means the Employee Retirement Income Security Act
         of 1974, as amended from time to time.

                  (iii) "ERISA Affiliate" means any trade or business (whether
         or not incorporated) under common control with the Borrower within the
         meaning of Section 414 (b) or (c) of the Code.

                  (iv) means the Pension Benefit Guaranty Corporation.

                  (v) "Plan" means a pension, profit-sharing, or stock bonus
         plan intended to qualify under Section 401(a) of the Code, maintained
         or contributed to by the Borrower or any ERISA Affiliate, including any
         multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.

7.15 Location of Borrower. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.


                                      -16-
<PAGE>


7.16 Year 2000 Compliance. The Borrower has conducted a comprehensive review and
assessment of the Borrower's and its Subsidiaries' computer applications with
respect to the "year 2000 problem" (that is, the risk that computer applications
may not be able to properly perform date-sensitive functions after December 31,
1999). Based on that review and assessment and given the nature of the
Borrower's and its Subsidiaries' businesses (a) the year 2000 problem will not
result in a material adverse change in the business condition (financial or
otherwise), operations, properties or prospects of the Borrower, or the Borrower
and its Subsidiaries taken as a whole, or the Borrower's ability to fulfill its
obligations under this Agreement and the other Loan Documents and (b) the
Borrower has no reason to believe that the failure of any of the Borrower's or
its Subsidiaries' key suppliers, vendors or customers to have computer systems
which are "year 2000 compliant," will result in a material adverse change in the
business condition (financial or otherwise), operations, properties or prospects
of the Borrower, or the Borrower and its Subsidiaries taken as a whole, or the
Borrower's ability to fulfill its obligations under this Agreement and the other
Loan Documents.

8. COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:

8.1 Use of Proceeds. To use the proceeds of the credit only for general
corporate purposes, including capital expenditures. The proceeds of the term
loan shall be used to satisfy all remaining monetary obligations of the Borrower
under the Purchase Transaction Documents.

8.2 Financial Information. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:

          (a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be prepared on a
consolidated basis and audited (with an unqualified opinion) by a Certified
Public Accountant acceptable to the Bank.

          (b) Within 45 days of the Borrower's fiscal quarter end, quarterly
financial statements. These financial statements may be Borrower prepared.


                                      -17-


<PAGE>


         (c) Copies of (1) the Form 20-F of Fuel-Tech N.V., a Netherlands
Antilles limited liability company, within 5 days after the date of its being
filed with the Securities and Exchange Commission and (2) any press releases
concerning Fuel Tech N.V.'s operating results, within 5 days following the
issuance thereof.

         (d) Within the period(s) provided in (a) and (b) above, a compliance
certificate of the Borrower signed by an authorized financial officer of the
Borrower setting forth (i) the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all financial
covenants at the end of the period covered by the financial statements then
being furnished and (ii) whether there existed as of the date of such financial
statements and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists, specifying the
nature thereof and the action the Borrower is taking and proposes to take with
respect thereto.

8.3 Net Worth. To maintain consolidated net worth equal to at least the sum of
the following:

         (a) Nine Million Dollars ($9,000,000.00); plus

         (b) the sum of 50% of net income after income taxes (without
subtracting losses other than up to $500,000 of losses with respect to the
Borrower's investment in Clean Diesel Technologies, Inc.) earned in each
quarterly accounting period commencing after June 30, 1999; plus

         (c) the net proceeds from any equity securities issued after the date
of this Agreement; plus

         (d) any increase in stockholders' equity resulting from the conversion
of debt securities to equity securities after the date of this Agreement.

As used herein "consolidated net worth" means the sum of (x) the gross book
value of the assets of the Borrower and its consolidated Subsidiaries plus (y)
Specified Subordinated Debt (as hereinafter defined) minus (z) consolidated
total liabilities of the Borrower and its consolidated Subsidiaries, including
but not limited to accrued and deferred income taxes, and any reserves against
assets. "Specified Subordinated Debt" means the aggregate principal amount of
all indebtedness owed by the Borrower to FTNV or other persons or entities
wholly owned by FTNV, in each case which has been subordinated to the Borrower's
obligations to the Bank pursuant to a subordination agreement in form and
substance reasonably satisfactory to the Bank.


                                  -18-
<PAGE>


8.4 Fixed Charge Coverage Ratio. To maintain a Fixed Charge Coverage Ratio,
determined as of the last day of each fiscal quarter, of at least 2.0 to 1.0.
"Fixed Charge Coverage Ratio" as of the last day of any fiscal quarter means the
ratio of (a) Trailing EBITDA minus Trailing Capital Expenditures, determined as
of such last day to (b) the sum on such last day of the Borrower's Pro Forma
Interest Expense and the current portion of long-term debt measured as of such
last day. "Trailing EBITDA" as of the last day of any fiscal quarter means the
sum for the period of twelve months ending on such last day of (i) the
Borrower's consolidated net income, plus (ii) the Borrower's consolidated
interest expense, plus (iii) the Borrower's consolidated tax expense, plus (iv)
the Borrower's consolidated depreciation, amortization and other noncash
charges; provided that in calculating "consolidated net income" for any period
there shall be excluded all extraordinary or nonrecurring gains or losses during
such period. "Trailing Capital Expenditures" as of the last day of any fiscal
month or quarter means the sum for the period of twelve months ending on such
last day of the Borrower's consolidated capital expenditures. "Pro Forma
Interest Expense" as of the last day of a fiscal month or quarter means the
aggregate pro forma consolidated interest expense to be incurred by the Borrower
and its consolidated Subsidiaries during the period of twelve consecutive months
commencing after such last day determined on the basis on the aggregate
indebtedness of the Borrower and its consolidated Subsidiaries outstanding on
such last day.

8.5 Other Debts. Not to, and not permit any of its Subsidiaries to, have
outstanding or incur any direct or contingent liabilities or lease obligations
(other than those to the Bank), or become liable for the liabilities of others
without the Bank's written consent. This does not prohibit, without duplication:

          (a) Acquiring goods, supplies, or merchandise on normal trade credit;

          (b) Endorsing negotiable instruments received in the usual course of
business;

          (c) Liabilities and lines of credit and leases in existence on the
date of this Agreement disclosed on Schedule 8.5 attached hereto;

          (d) Additional debts and lease obligations (including under
capitalized or operating leases) for the acquisition or leasing of fixed or
capital assets, to the extent permitted elsewhere in this Agreement;


                                      -19-
<PAGE>


          (e) Lease obligations incurred in connection with the leasing of
current or new office space on commercially reasonable terms;

          (f) Liabilities under standard commercial indemnities granted or
issued by the Borrower in the conduct of its business in the ordinary course;
and

          (g) Unsecured indebtedness for borrowed money and unsecured
obligations in respect of letters of credit in an amount not to exceed an
outstanding amount of $500,000 in the aggregate.

8.6 Other Liens. Not to, and not permit any of its Subsidiaries to, create,
assume, or allow any security interest or lien (including judicial liens) on
property the Borrower or its Subsidiaries now or later owns, except:

          (a) Liens and security agreements in favor of the Bank;

          (b) Liens for taxes not yet delinquent or taxes being diligently
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by generally
accepted accounting principles are being maintained on its books;

          (c) Liens of carrier's, warehousemen, mechanics, materialmen,
repairmen, landlords and other like statutory liens arising in the ordinary
course of business securing obligations which are not overdue or which are being
diligently contested in good faith and by appropriate proceedings and as to
which such reserves or other appropriate provisions as may be required by
generally accepted accounting principles are being maintained on its books;

          (d) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits;

          (e) judgment liens in existence less than 21 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered in full (subject to a customary deductible) by insurance
maintained with responsible insurance companies;

          (f) Liens outstanding on the date of this Agreement disclosed to the
Bank in writing and liens in favor of Nalco FT, Inc. pursuant to a Security
Agreement dated as of March 23, 1998, (the termination of which is a condition
to the Bank's having any obligation to make an extension of credit under this
Agreement.)


                                      -20-
<PAGE>


          (g) Purchase money security interests in property acquired after the
date of this Agreement if (1) the lien attaches only to the property acquired
and (2) the total principal amount of debt secured by such liens does not exceed
Five Hundred Thousand Dollars ($500,000) at any one time;

8.7 Capital Expenditures. Not to, and not permit its Subsidiaries to, spend or
incur obligations (including the total amount of any capital leases) for more
than One Million Five Hundred Thousand Dollars ($1,500,000) in the aggregate for
the Borrower and its Subsidiaries in any single fiscal year to acquire fixed or
capital assets, exclusive of amounts expended which either (a) represent the
proceeds of grant monies actually received by the Borrower or one of its
Subsidiaries or (b) do not exceed grant monies which have been actually awarded
and which are to be received not later than 90 days after the date of the
expenditure.

8.8 Leases. Not permit the aggregate payments due from the Borrower and its
Subsidiaries in any fiscal year under all leases (including capital and
operating leases for real or personal property) to exceed One Million Dollars
($1,000,000).

8.9 Dividends. Not to declare or pay any dividends on any of its shares except
dividends payable in capital stock of the Borrower, and not to purchase, redeem
or otherwise acquire for value, or permit any of its Subsidiaries to purchase,
redeem or otherwise acquire, any shares of Borrower's stock, or create any
sinking fund in relation thereto except dividends payable in its capital stock,
if immediately before or immediately after giving effect thereto either (a) a
default exists or would exist under this Agreement or (b) the aggregate amount
paid in any fiscal year as dividends or to purchase, redeem or otherwise acquire
army outstanding stock, would exceed $900,000.

8.10 Loans and Investments. Not, and not permit its Subsidiaries to, make any
loans or other extensions of credit to, or make any investments in, or make any
capital contributions or other transfers of assets to, any individual or
entity", except for:

          (a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;

          (b) advances to its employees or employees of any of its Subsidiaries
for travel or other ordinary business expenses, in amounts which are reasonable
and consistent With the Borrower's past practices;


                                      -21-
<PAGE>


          (c) advances to subcontractors and suppliers in amounts which are
reasonable and consistent with the Borrower's past practices;

          (d) shares of stock, obligations or other securities received in
settlement of claims arising in the ordinary course of business;

          (e) an investment by the Borrower in Clean Diesel Technologies, Inc.
in an aggregate amount not to exceed $500,000;

          (f) investments by the Borrower in its Subsidiaries in existence of
the date of this Agreement and in Subsidiaries created after the date hereof;
provided that the aggregate dollar amount of all such investments shall not
exceed the sum of (1) Borrower's aggregate investment in its Subsidiaries on the
date of this Agreement plus (2) $500,000;

          (g) deposits in bank accounts in foreign countries in major foreign
banks to the extent necessary to provide operating funds for Borrower's foreign
Subsidiaries;

          (h) investments in any of the following: (i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal government; (iii)
commercial paper rated at least A-1 by Standard & Poor's Ratings Group and at
least P-1 by Moody's Investors Service, Inc.; (iv) repurchase agreements
covering U.S. government securities; and (v) securities accounts or investment
accounts maintained by the Bank in the name of the Borrower or for the benefit
of the Borrower; and

          (i) investments in the nature of acquisitions permitted under Section
8.20(f).

          As used in this Agreement, the term "investment" means, without
duplication, (1) any investment, made in cash or by delivery of any kind of
property or asset, by the Borrower or any of its Subsidiaries in any other
person or entity, whether by acquisition of shares of stock or similar interest,
indebtedness or other obligation or security, or by loan, advance or capital
contribution, or otherwise, (2) any guarantee by the Borrower or any of its
Subsidiaries of the obligations of any other person or entity and (3) any
ownership or similar interest held by the Borrower or any of its Subsidiaries in
any other person or entity. The amount of any "investment" shall be the original
principal or capital amount thereof less all returns of principal or equity
thereon and shall, if made by the transfer or exchange of property other than
cash, be deemed to have been made in an original principal or capital amount
equal to the fair market value of such property.


                                      -22-
<PAGE>


8.11 Notices to Bank. To promptly notify the Bank in writing of:

         (a) any lawsuit over $500,000 against the Borrower or any of its
Subsidiaries.

         (b) any substantial dispute between the Borrower or any of its
Subsidiaries and any government authority.

         (c) any failure to comply with this Agreement or any other Loan
Document.

         (d) any material adverse change in the business condition (financial or
otherwise), operations, properties or prospects of the Borrower, or the Borrower
and its Subsidiaries taken as a whole, or the Borrower's ability to perform and
fulfill its obligations under this Agreement or any other Loan Document.

          (e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than one place of
business.

8.12 Books and Records. To maintain adequate books and records.

8.13 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records. The Bank has no duty to inspect the Borrower's
properties or to examine, audit or copy books and records and the Bank shall not
incur any obligation or liability by reason of not making any such inspection or
inquiry. In the event that the Bank inspects the Borrower's properties or
examines, audits or copies books and records, the Bank will be acting solely for
the purposes of protecting the Bank's security and preserving the Bank's rights
under this Agreement. Neither the Borrower nor any other party is entitled to
rely on any inspection or other inquiry by the Bank. The Bank owes no duty of
care to protect the Borrower or any other party against, or to inform the
Borrower or any other party of, any adverse condition that may be observed as
affecting the Borrower's properties or premises, or the Borrower's business. In
the event that the Bank has a duty or obligation under applicable laws,
regulations or legal requirements to disclose any report or findings made as a
result of, or in connection with, any site visit, observation or testing by the
Bank, the Bank may make such a disclosure to the Borrower or any other party. As
long as Borrower is not in default of its obligations under this Agreement the
Bank will give at least two days' advance notice of its intent to visit a
premises, and all such visits shall be during normal business hours and made in
such a way as to interfere as little as possible with the conduct of the
Borrower's or its Subsidiaries' businesses.


                                      -23-
<PAGE>


8.14 Compliance with Laws. To comply, and cause its Subsidiaries to comply,
with, the laws (including any fictitious name statute), regulations, and orders
of any government body with authority over the Borrower's and its Subsidiaries'
businesses.

8.15 Preservation of Rights. Except as otherwise permitted under Section 8.20,
to maintain and preserve, and cause its Subsidiaries to maintain and preserve,
all rights, privileges, and franchises the Borrower and its Subsidiaries now
have, except where maintenance of such rights, privileges and franchises shall
have been determined by the Borrowers' Board of Directors to be not commercially
reasonable.

8.16 Maintenance of Properties. To make, and cause its Subsidiaries to make, any
repairs, renewals, or replacements to keep the Borrower's and its Subsidiaries'
properties in good working condition, except where taking any such action shall
have been determined by the Borrowers' Board of Directors to be not
commercially.reasonable.

8.17 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for reasonable related costs it incurs to
protect its security interests and liens.

8.18 Cooperation. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement and the other Loan Documents.

8.19 Insurance.

          (a) General Business Insurance. To maintain and cause its Subsidiaries
to maintain insurance satisfactory to the Bank as to amount, nature and carrier
covering property damage (including loss of use and occupancy) to any of the
Borrower's and its Subsidiaries' properties, public liability insurance
including coverage for contractual liability, product liability and workers'
compensation, and any other insurance which is usual for the Borrower's and its
Subsidiaries' businesses.

          (b) Evidence of Insurance. Upon the request of the Bank, to deliver to
the Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.


                                      -24-
<PAGE>


8.20 Additional Negative Covenants. Without the Bank's written consent, not to
and not permit any of its Subsidiaries to:

          (a) engage in any business activities substantially different from its
respective present business (and its initiative in advanced computing is
considered part of its present business).

          (b) liquidate or dissolve the Borrower's or any of its Subsidiaries'
business, except that (1) a Subsidiary of the Borrower may liquidate or dissolve
into the Borrower or into any other wholly-owned Subsidiary of the Borrower and
(2) this paragraph shall not prohibit the liquidation, dissolution or sale of
Fuel Tech, Inc. Gmbh and Fuel Tech Polske Sp. zo.o, both of which are
Subsidiaries of Borrower on the date of this Agreement.

          (c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination, or become a partner in a partnership, a member
of a joint venture, or a member of a limited liability company, except that (1)
any Subsidiary of the Borrower may merge into the Borrower (provided the
Borrower is the surviving entity) or may merge or consolidate with or into any
other wholly-owned Subsidiary of the Borrower and (2) this paragraph shall not
prohibit acquisitions permitted under section 8.20(f).

          (d) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do so.

          (e) sell, assign, lease, transfer or otherwise dispose of any assets,
or enter into any agreement to do so, except:

                  (i) dispositions of inventory, or used, worn-out or surplus
         equipment or other assets, all in the ordinary course of business;

                  (ii) allowing patents, trademarks, copyrights or other
         intellectual property to lapse or expire if the Borrower in good faith
         has determined that the such intellectual property is no longer of
         material value or usefulness to the conduct of its business; and

                  (iii) the sale of equipment to the extent that such equipment
         is exchanged for credit against the purchase price of similar
         replacement equipment, or the proceeds of such sale are reasonably
         promptly applied to the purchase price of such replacement equipment.


                                      -25-
<PAGE>


         (f) acquire or purchase a business or its assets (whether through the
purchase of assets, through merger, consolidation or otherwise) unless, both
before and after giving effect thereto, both of the following conditions are
satisfied: (1) the aggregate consideration paid (whether in cash or property, by
assumption of indebtedness or otherwise) by the Borrower and its Subsidiaries
for all such acquisitions or purchases during any Fiscal Year does not exceed
1,500,000 AND (2) no default or event of default or event which, with the giving
of notice or the passage of time, or both, would be or become an event of
default under this Agreement or any other Loan Document, shall exist. In
addition to the foregoing requirements, if the Borrower is unable to fund the
entire consideration paid in connection with an acquisition from internally
generated funds and/or through the sale of equity securities (i.e., the Borrower
requests a borrowing to fund a portion of such consideration), the Combined Pro
Forma Fixed Charge Coverage Ratio (as hereinafter defined) after giving effect
to such acquisition must be at least 2.50 to 1.0 As used in this paragraph (f)
"Combined Pro Forma Fixed Charge Coverage Ratio" means at any date of
determination (or, if such date is not the last day of a fiscal quarter, the
fiscal quarter end next preceding such date) the ratio on such date of (x)
Combined Pro Forma Trailing EBITDA minus Combined Pro Forma Trailing Capital
Expenditures to (y) the sum of the Combined Pro Forma Interest Expense and the
Combined Pro Forma Current Debt. "Combined Pro Forma Trailing EBITDA" as of any
date of determination means the sum for the period of twelve months ending on
such date of (i) the aggregate of the consolidated net income of the Borrower
and of the business or assets to be acquired (the "Target"), plus (ii) the
aggregate of the Borrower's and the Target's consolidated interest expense, plus
(iii) the aggregate of the Borrower's and the Target's consolidated tax expense,
plus (iv) the aggregate of the Borrower's and the Target's consolidated
depreciation, amortization and other noncash charges, in each case calculated as
if the Borrower had acquired the Target at the beginning of such twelve month
period; provided that in calculating "consolidated net income" for any period
there shall be excluded all extraordinary or nonrecurring gains or losses during
such period. "Combined Pro Forma Trailing Capital Expenditures" as of any date
of determination means the sum for the period of twelve months ending on such
date of the Borrower's and the Target's consolidated capital expenditures
calculated as if the Borrower had acquired the Target at the beginning of such
twelve month period. "Combined Pro Forma Interest Expense" as of any date of
determination means the aggregate of the Borrower's and the Target's pro forma
consolidated interest expense to be incurred by the Borrower and the Target and
their respective consolidated Subsidiaries during the period of twelve
consecutive months commencing after such date of determination on the basis on
the aggregate indebtedness of the Borrower and the Target and their respective
consolidated Subsidiaries outstanding on such date. "Combined Pro Forma Current
Debt" as of any date of determination means the aggregate on such date of the
current portion of long-term debt of the Borrower and the Target.


                                      -26-
<PAGE>


          (g) voluntarily suspend its business, except for its Poland and German
Subsidiaries.

8.21 Hank as Principal Depository. To maintain the Bank as its principal
depository bank, including for the maintenance of business, cash management,
operating and administrative deposit accounts.

8.22 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to give
prompt written notice to the Bank of:

         (a) The occurrence of any reportable event under Section 4043(c) of
ERISA for which the PBGC requires 30 day notice.

         (b) Any action by the Borrower or any ERISA Affiliate to terminate or
withdraw from a Plan or the filing of any notice of intent to terminate under
Section 4041 of ERISA.

         (c) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.

9. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrower's property or operations or property leased to the Borrower. The
indemnity includes but is not limited to reasonable attorneys' fees (including
the reasonable estimate of the allocated cost of in-house counsel and staff).
The indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas. This indemnity will survive repayment of the Borrower's obligations
to the Bank.

10. DEFAULT

If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy" below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.


                                      -27-
<PAGE>



10.1 Failure to Pay. The Borrower (a) fails to make a payment of principal of
any Advance when due, or (b) fails to pay any interest, fee or other amount when
due and such failure continues for a period of three days.

10.2 Lien Priority. The Bank fails to have an enforceable first lien (except for
any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this Agreement.

10.3 False Information. The Borrower has knowingly or intentionally given the
Bank false or misleading information or representations.

10.4 Bankruptcy. The Borrower files a bankruptcy petition, a bankruptcy petition
is filed against the Borrower, or the Borrower makes a general assignment for
the benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against the Borrower is dismissed within a period of 60 days
after the filing; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.

10.5 Receivers; Termination. A receiver or similar official is appointed for the
Borrower's business or the business is terminated.

10.6 Judgments. Any judgments or arbitration awards are entered against the
Borrower, or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of $500,000 or more in
excess of any insurance coverage and either (a) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order or (b) there
shall be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect.

10.7 Government Action. Any government authority takes action that the Bank
reasonably believes materially adversely affects the Borrower's financial
condition or ability to repay.

10.8 Material Adverse Change. A material adverse change occurs, in the
Borrower's business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit.


                                      -28-
<PAGE>


10.9 Cross-default. Any default by the Borrower or any of its Subsidiaries
occurs under any agreement in connection with any credit the Borrower or any of
its Subsidiaries has obtained from anyone other than the Bank or which the
Borrower or any of its Subsidiaries has guaranteed in the amount of Five Hundred
Thousand Dollars ($500,000) or more in the aggregate.

10.10 Default Under Other Loan Documents. Any guaranty, subordination agreement,
security agreement, mortgage, deed of trust, or other Loan Document required by
this Agreement (a) is violated, and such violation continues to exist after the
giving of any required notice and the expiration of any applicable grace period
set forth in such Loan Document, or (b) shall (except in accordance with its
terms), in whole or in part, terminate, cease to be effective or cease to be the
legally valid, binding and enforceable obligation of a party obligated to the
Bank thereunder.

10.11 Other Bank Agreements. The Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement the Borrower has with
the Bank or any affiliate of the Bank, or demand is made by the Bank or any
affiliate of the Bank on any obligation owing to the Bank or such affiliate
under any other agreement the Borrower has with the Bank or any affiliate of the
Bank.

10.12 ERISA Plans. The occurrence of any one or more of the following events
with respect to a Plan subject to Title IV of ERISA, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower:

          (a) A reportable event shall occur under Section 4043(c) of ERISA with
respect to a Plan.

          (b) Any Plan termination (or commencement of proceedings to terminate
a Plan) or the full or partial withdrawal from a Plan by the Borrower or any
ERISA Affiliate.

10.13 Other Breach Under Agreement. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure by the
Borrower to comply with any financial covenants, including any failure which
continues to exist after the giving of any required notice and the expiration of
any applicable grace period, set forth in this Agreement, whether such failure
is evidenced by financial statements delivered to the Bank or is otherwise known
to the Borrower or the Bank.


                                      -29-
<PAGE>


11. ENFORCING THIS AGREEMENT; MISCELLANEOUS

11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

11.2 Illinois Law. THIS AGREEMENT IS GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF ILLINOIS.

11.3 Successors and Assigns. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees.

11.4 Severability; Waivers. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.

11.5 Attorneys' Fees. The Borrower shall reimburse the Bank for any reasonable
costs and reasonable attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with the administration of this Agreement or any amendment, waiver,
"workout" or restructuring under this Agreement. In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover costs and
reasonable attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator. In the event
that any case is commenced by or against the Borrower under the Bankruptcy Code
(Title 11, United States Code) or any similar or successor statute, the Bank is
entitled to recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights of the
Bank in such a case. As used in this paragraph, "attorneys' fees" includes the
reasonable allocated costs of the Bank's in-house counsel.

11.6 One Agreement. This Agreement and any related security or other agreements
required by this Agreement, collectively:

          (a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit; and

          (b) replace any prior oral or written agreements between the Bank and
the Borrower concerning this credit; and


                                      -30-
<PAGE>


          (c) are intended by the Bank and the Borrower as the final, complete
and exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.

11.7 Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit, except to the
extent that such loss, liability, damages, judgments, and costs is proximately
caused by the Bank's gross negligence or willful misconduct. This indemnity
includes but is not limited to reasonable attorneys' fees (including the
reasonable allocated cost of in-house counsel). This indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys, and assigns. This indemnity will survive
repayment of the Borrower's obligations to the Bank. All sums due to the Bank
hereunder shall be obligations of the Borrower, due and payable immediately
without demand.

11.8 Notices. All notices required under this Agreement will be in writing and
will be transmitted by personal delivery, first class mail, overnight courier,
or facsimile to the addresses or facsimile numbers on the signature page of this
Agreement, or to such other addresses or facsimile numbers as the Bank and the
Borrower may specify from time to time in writing.

11.9 Headings. Article and paragraph headings are for reference only and do not
affect the interpretation or meaning of any provisions of this Agreement.

11.10 Counterparts; Effectiveness. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, will be deemed an
original but all such counterparts will constitute but one and the same
agreement. On the date (a) a counterpart executed by the Borrower has been
received by the Bank, (b) the Bank has executed this Agreement and (c) all of
the conditions precedent described in Section 6 have been satisfied to the
satisfaction of the Bank, this Agreement shall become effective (such date is
herein called the "Restatement Effective Date").

11.11 Consent to Jurisdiction. To induce the Bank to accept this Agreement, the
Borrower irrevocably agrees that, subject to the


                                      -31-
<PAGE>


Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING
OUT OF OR RELATED TO THIS AGREEMENT WILL BE LITIGATED IN COURTS HAVING SITUS IN
CHICAGO, ILLINOIS. THE BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION
OF ANY COURT LOCATED WITHIN CHICAGO, ILLINOIS, WAIVES PERSONAL SERVICE OF
PROCESS UPON THE BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT.

11.12 Waiver of J1ury Trial. THE BORROWER AND THE BANK EACH WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a)
UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION WITH THIS AGREEMENT OR (b) ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

                          (SIGNATURE PAGE FOLLOWS NEXT]


                                      -32-
<PAGE>


This Agreement is executed as of the date stated at the top of the first page.

BANK OF AMERICA,                         FUEL TECH INC., a Delaware
NATIONAL ASSOCIATION                     corporation


By:                                      By
Title:                                   Title:                   Vice President
Address and facsimile number                     Address and facsimile number
where notices to the Bank are                    where notices to the Borrower
to be sent:                                      are to be to be sent:
231 South LaSalle Street                         512 Kingsland Drive
Chicago, IL 60697                                Batavia, IL 60510-2299
Attn: Marc J . Crady                             Attn: Vince Arnone
Facsimile: (312) 828-                            Facsimile: 630-845-4501


                                      -33-
<PAGE>


                               AMENDMENT NO. 1 TO
                              AMENDED AND RESTATED
                  Bank of America, N.A. BUSINESS LOAN AGREEMENT

This Amendment No. 1 (the "Amendment") dated as of December 31, 1999, is between
BANK OF AMERICA, NATIONAL ASSOCIATION (the "Bank") and FUEL TECH, INC. (the
"Borrower").

                                    RECITALS

A. The Bank and the Borrower entered into a certain Amended and Restated
Business Loan Agreement dated as of August 31, 1999 (the "Agreement").

B. The Bank and the Borrower desire to amend the Agreement.

                                    AGREEMENT

1. Definitions. Capitalized terms used but not defined in this Amendment shall
have the meanings given to them in the Agreement.

2. Amendment. Subsection (a) of Section 8.2 Financial Information of the
Agreement is hereby amended and restated to read:

"(a) Within 90 days of: (i) FTNV's fiscal year end, FTNV's annual financial
statements. These financial statements must be prepared on a consolidated basis
and audited (with an unqualified opinion) by a Certified Public Accountant
acceptable to the Bank and (ii) the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements may be Borrower
prepared. The statements shall be prepared on a consolidated basis."

3. Representations and Warranties. When the Borrower signs this Amendment, the
Borrower represents and warrants to the Bank that:

3.1 There is no event which is, or with notice or lapse of time or both would
be, a default under the Agreement except those events, if any, that have been
disclosed in writing to the Bank or waived in writing by the Bank;

3.2 The representations and warranties in the Agreement are true and correct as
of the date of this Amendment as if made on the date of this Amendment;

3.3 The Borrower has notified the Bank in writing of any change in (i) the
locations of the Borrower's place of business or, if the Borrower has more than
one place of business, the Borrower's chief executive office and any collateral;
and (ii) the Borrower's name, identity or business structure.

3.4 This Amendment is within the Borrower's powers, has been duly authorized,
and does not conflict with any of the Borrower's organizational papers; and

3.5 This Amendment does not conflict with any law, agreement, or obligation by
which the Borrower is bound.

4. Conditions. This Amendment will become effective on the date first set forth
above, provided, however, that the effectiveness of this Amendment is subject to
receipt by the Bank of an original of this Amendment duly executed by the
Borrower.

================================================================================


<PAGE>


5. Effect of Amendment. Except as provided in this Amendment, all of the terms
and conditions of the Agreement shall remain in full force and effect.

6. Counterparts. This Amendment may be executed in counterparts, each of which
when so executed shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument.

This Amendment is executed as of the date stated at the beginning of this
Amendment.

BANK OF AMERICA, NATIONAL ASSOCIATION            FUEL TECH, INC.

By:                                              By.

Title:                                           Title:
      ------------------------                          ------------------------


<PAGE>


                                 SIXTH AMENDMENT
                                       TO
                  AMENDED AND RESTATED BUSINESS LOAN AGREEMENT

THIS SIXTH AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT (this
"Amendment") dated as of March 31, 2002 is made and entered into by and between
BANK OF AMERICA, N.A. (the "Bank") and FUEL TECH, INC., a Massachusetts
corporation (the "Borrower").

                                    RECITALS

WHEREAS, the Bank and the Borrower are parties to that certain Amended and
Restated Business Loan Agreement dated as of August 31, 1999 (as heretofore
amended, the "Agreement");

WHEREAS, the Bank and the Borrower have agreed to amend the Agreement as
hereinafter set forth;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Bank and the Borrower hereby agree as
follows:

                                    AGREEMENT

1. Definitions. Capitalized terms used, but not defined, in this Amendment shall
have the meanings given to them in the Agreement.

2. Amendment. The Agreement is hereby amended as follows:

         2.1 Line of Credit Amount. Section 1.1(a)(i) of the Agreement is hereby
restated as follows:


(i) During the availability period described below, the Bank will provide a line
of credit to the Borrower. The amount of the line of credit (the "Line of Credit
Commitment") is Six Million Dollars ($6,000,000.00). The amount available to the
Borrower (the "Availability") at any time is Six Million Dollars
($6,000,000.00).

         2.2 Unused Commitment Fee. Section 3.1 (b) of the Agreement is hereby
restated as follows:

         (b) Unused Commitment Fee. The Borrower agrees to pay a fee on any
         difference between the Line of Credit Commitment and the amount of the
         line of credit it actually uses, determined by the weighted average
         credit outstanding during the specified period. The fee will be
         calculated at 0.50% per year. The calculation of credit outstanding
         will include the undrawn amount of letters of credit. This fee is due
         on the last day of each fiscal quarter until the expiration of the
         availability period.


<PAGE>


         2.3 Net Worth. Section 8.3 of the Agreement is hereby restated as
follows:

         8.3 Net Worth. To maintain consolidated net worth (as hereinafter
defined) as of March 31, 2002, and as of the last day of each fiscal quarter
thereafter, of not less than Twelve Million Seven Hundred and Fifty Thousand
Dollars ($12,750,000).

         As used herein "consolidated net worth" means the sum of (a) the gross
book value of the assets of the Borrower and its consolidated Subsidiaries, plus
(b) Specified Subordinated Debt (as hereinafter defined), minus (c) consolidated
total liabilities of the Borrower and its consolidated Subsidiaries, including
but not limited to accrued and deferred income taxes, and any reserves against
assets. "Specified Subordinated Debt" means the aggregate principal amount of
all indebtedness owed by the Borrower to FTNV or other persons or entities
wholly owned by FTNV, in each case which has been subordinated to the Borrower's
obligations to the Bank pursuant to a subordination agreement in form and
substance reasonably satisfactory to the Bank.

         2.4 Minimum EBITDA. Section 8.4 of the Agreement is hereby restated as
follows:


         8.4 Minimum EBITDA. To maintain a minimum EBITDA (as hereinafter
deferred) as of the last day of each fiscal quarter set forth below of not less
than the following respective amounts:

Fiscal Quarter Ending                                     Minimum EBITDA Amount
June 30, 2002                                                  $1,000,000
September 30, 2002                                               $750,000
(based on a two-fiscal
quarter average)
December 31, 2002                                                $750,000
(based on a three-fiscal
quarter average)
March 31, 2003 and                                               $750,000
each fiscal quarter
thereafter (based on a
four-fiscal quarter
average)

                                       -2-


<PAGE>


         As used herein, "EBITDA" means, for any period, the sum for such period
         of (a) the Borrower's consolidated net income, plus (b) the Borrower's
         consolidated interest expense, plus (c) the Borrower's consolidated tax
         expense, plus (d) the Borrower's consolidated depreciation,
         amortization and other noncash charges; provided that in calculating
         "consolidated net income" for any period, there shall be excluded all
         extraordinary or nonrecurring gains or losses during such period.

         2.5 Value of Nations Fund Account. Section 8.23 of the Agreement is
hereby deleted.

         3. Warranties. To induce the Bank to enter into this Amendment, the
Borrower warrants that:

         3:1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.

         3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or of the
articles of incorporation or by-laws of the Borrower or of any agreement binding
upon the Borrower.

         3.3 Validity and Binding Effect. The Agreement, as amended hereby, is a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.

         3.4 Representations and Warranties. After giving effect to this
Amendment, each of the representations and warranties set forth in the Agreement
are true and correct on, and as of, the date first set forth above.

4. Conditions Precedent To Amendments. The amendments contemplated by Section 2
hereof shall be effective as of the date hereof, subject to the satisfaction of
each of the following conditions precedent:

         4.1 Documentation. The Borrower shall have delivered to the Bank all of
the following, each duly executed and dated the closing date hereof, in form and
substance satisfactory to the Bank:

              (a) Amendment. This Amendment;

              (b) Fuel-Tech N.V. Reaffirmation. Fuel-Tech N.V. shall have
executed and delivered to the Bank a Reaffirmation of Subordination Agreement in
the form of Exhibit A attached hereto; and


                                       -3-
<PAGE>


              (c) Other. Such other instruments, documents or agreements as the
Bank may reasonably request.

         4.2 No Default. As of the date hereof, No Default (as set forth in
Section 10 of the Agreement) shall exist, after giving effect to this Amendment.

         4.3 Warranties. As of the date hereof, the warranties in Section 3 of
this Amendment shall be true and correct on, and as of, such date.

         4.4 Amendment Fee. The Borrower shall have paid to the Bank an
amendment fee of $__________.


5. General.

         5.1 Expenses. The Borrower agrees to pay the Bank upon demand for all
expenses, including reasonable attorneys' fees incurred by the Bank in
connection with the preparation, negotiation arid execution of this Amendment
and any document required to be furnished therewith.

         5.2 Law. This Amendment shall be construed in accordance with, and
governed by, the internal laws of the State of Illinois.

         5.3 Successors. 'this Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and the successors and assigns of the Bank.

         5.4 Confirmation of the Agreement. The Agreement, as amended hereby,
shall remain in full force and effect and is hereby ratified and confirmed in
all respects.

         5.5 References to the Agreement. Each reference in the Agreement to
"this Agreement," "hereunder," "hereof," or words of similar import to documents
provided for in the Agreement or delivered or to be delivered thereunder or in
connection therewith, shall, except where the context otherwise requires, be
deemed a reference to the Agreement as amended hereby.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.


                                       -4-
<PAGE>


                                SEVENTH AMENDMENT
                                       TO
                  AMENDED AND RESTATED BUSINESS LOAN AGREEMENT

THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT (this
"Amendment") dated as of December 31, 2002 is made and entered into by and
between BANK OF AMERICA, N.A. (the "Bank") and FUEL TECH, INC., a Massachusetts
corporation (the "Borrower").

                                    RECITALS

WHEREAS, the Bank and the Borrower are parties to that certain Amended and
Restated Business Loan Agreement dated as of August 31, 1999 (as heretofore
amended, the "Agreement");

WHEREAS, the Bank and the Borrower have agreed to amend the Agreement as
hereinafter set forth;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Bank and the Borrower hereby agree as
follows:

                                    AGREEMENT


1. Definitions. Capitalized terms used, but not defined, in this Amendment shall
have the meanings given to them in the Agreement.

2. Amendment. The Agreement is hereby amended as follows:

2.1 Line of Credit Amount. Section l.l(a)(i) of the Agreement is hereby restated
as follows:

         (i) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line of credit (the
"Line of Credit Commitment") is Ten Million Dollars ($10,000,000.00). The amount
available to the Borrower (the "Availability") at any time is Ten Million
Dollars ($10,000,000.00).

2.2 Availability Period. Section 1.1(b) of the Agreement is hereby restated as
follows:

         (b) Availability Period. The line of credit is available between the
date of this Agreement and July 31, 2004 (the "Expiration Date"), unless the
Borrower is in default.

2.3 Unused Commitment Fee. Section 3.1 (b) of the Agreement is hereby restated
as follows:


<PAGE>


(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any difference
between (a) the Line of Credit Commitment and (b) the sum of (i) the amount of
the line of credit it actually uses (determined by the weighted average line of
credit outstandings during the specified period) plus (ii) the maximum principal
amount of this credit facility extended to Fuel Tech SRL by the Bank's Milan,
Italy branch, assuming for purposes of this Section 3.1 b that such credit
facility has been fully borrowed. The fee will be calculated at 0.50% per year.
The calculation of line of credit outstandings will include the undrawn amount
of letters of credit. This fee is due on the last day of each fiscal quarter
until the expiration of the availability period.

2.4 Capital Expenditures. Section 8.7 of this Agreement is hereby restated as
follows:

         8.7 Capital Expenditures. Not to, and not permit its Subsidiaries to,
spend or incur obligations (including the total amount of any capital leases)
for more than $2,250,000 in the aggregate for the Borrower and its Subsidiaries
in any single fiscal year to acquire fixed or capital assets, exclusive of
amounts expended which either (a) represent the proceeds of grant monies
actually received by the Borrower or one of its Subsidiaries or (b) do not
exceed grant monies which have been actually awarded and which are to be
received not later than 90 days after the date of the expenditure.

2.5 Dividends. Section 8.9 of the Agreement is hereby restated as follows:

         8.9 Dividends. Not to declare or pay any dividends on any of its shares
except dividends payable in capital stock of the Borrower, and not to purchase,
redeem or otherwise acquire for value, or permit any of its Subsidiaries to
purchase, redeem or otherwise acquire, any shares of Borrower's stock, or create
any sinking fund in relation thereto except dividends payable in its capital
stock, if immediately before or immediately after giving effect thereto a
default exists or would exist under this Agreement.

2.6 Loans and Investments. Section 8.10 of this Agreement is hereby restated as
follows:

         8.10 Loans and Investments. Not, and permit its Subsidiaries to, make
any loans or other extensions of credit to, or make any investments in, or make
any capital contributions or other transfers of assets to, any individual or
entity, except for:

         (a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;


                                       2
<PAGE>


         (b) advances to its employees or employees of any of its Subsidiaries
         for travel or other ordinary business expenses, in amounts which are
         reasonable and consistent with the Borrower's past practices;

         (c) advances to subcontractors and suppliers in amounts which are
         reasonable and consistent with the Borrower's past practices;

         (d) shares of stock, obligations or other securities received in
         settlement of claims arising in the ordinary course of business;

         (e) an investment by the Borrower in Clean Diesel Technologies, Inc. in
         an aggregate amount not to exceed $500,000;

         (f) investments by the Borrower in its Subsidiaries in existence of the
         date of this Agreement and in Subsidiaries created after the date
         hereof; provided that the aggregate dollar amount of all such
         investments shall not exceed the sum of (1) Borrower's aggregate
         investment in its Subsidiaries on the date of this Agreement plus (2)
         $1,000,000;

         (g) deposits in bank accounts in foreign countries in major foreign
         banks to the extent necessary to provide operating funds for Borrower's
         foreign Subsidiaries;

         (h) investments in any of the following: (i) certificates of deposit;
         (ii) U.S. treasury bills and other obligations of the federal
         government; (iii) commercial paper rated at least A-1 by Standard &
         Poor's Ratings Group and at least P-1 by Moody's Investors Service,
         Inc.; (iv) repurchase agreements covering U.S. government securities;
         and (v) securities accounts or investment accounts maintained by the
         Bank in the name of the Borrower or for the benefit of the Borrower;

         (i) investments in the nature of acquisitions permitted under Section
         8.20(f); and

         (j) loans, advances capital contributions, investments or extensions of
         credit not otherwise described in subsections (a) through (i) above not
         exceeding $500,000 in the aggregate outstanding at any time.

         As used in this Agreement, the term "investment" means, without
duplication, (1) any investment, made in cash or by delivery of any kind of
property or asset, by the Borrower or any of its Subsidiaries in any other
person or entity, whether by acquisition of shares of stock or similar interest,
indebtedness or other obligation or security, or by loan, advance or capital
contribution, or otherwise, (2) any guarantee by the Borrower or any of its
Subsidiaries of the obligations of any other person or entity and (3) any
ownership or similar interest held by the Borrower or any of its Subsidiaries in
any other person or entity. The amount of any "investment" shall be the original
principal or capital amount thereof less all returns of principal or equity
thereon and shall, if made by the transfer or exchange of property other than
cash, be deemed to have been made in an original principal or capital amount
equal to the fair market value of such property.


                                        3
<PAGE>


         2.7 Additional Negative Covenants. Section 8.20 of the Agreement is
hereby restated as follows:

                  8.20 Additional Negative Covenants. Without the Bank's written
         consent, not to and not permit any of its Subsidiaries to:

                  (a) engage in any business activities substantially different
                  from its respective present business (and its initiative in
                  advanced computing is considered part of its present
                  business).

                  (b) liquidate or dissolve the Borrower's or any of its
                  Subsidiaries' business, except that (1) a Subsidiary of the
                  Borrower may liquidate or dissolve into the Borrower or into
                  any other wholly-owned Subsidiary of the Borrower and (2) this
                  paragraph shall not prohibit the liquidation, dissolution or
                  sale of Fuel Tech, Gmbh and Fuel Tech Jamaica, Ltd.

                  (c) enter into any consolidation, merger, pool, joint venture,
                  syndicate, or other combination, or become a partner in a
                  partnership, a member of a joint venture, or a member of a
                  limited liability company, except that (1) any Subsidiary of
                  the Borrower may merge into the Borrower (provided the
                  Borrower is the surviving entity) or may merge or consolidate
                  with or into any other wholly-owned Subsidiary of the Borrower
                  and (2) this paragraph shall not prohibit acquisitions
                  permitted under Section 8.20

                  (d) sell, assign, lease, transfer or otherwise dispose of any
                  assets for less than fair market value, or enter into any
                  agreement to do so.

                  (e) sell, assign, lease, transfer or otherwise dispose of any
                  assets, or enter into any agreement to do so, except:

                           (i)      dispositions of inventory, or used, worn-out
                                    or surplus equipment or other assets, all in
                                    the ordinary course of business;

                           (ii)     allowing patents, trademarks, copyrights or
                                    other intellectual property to lapse or
                                    expire if the Borrower in good faith has
                                    determined that the such intellectual
                                    property is no longer of material value or
                                    usefulness to the conduct of its business;
                                    and


                                        4
<PAGE>




                  (iii) the sale of equipment to the extent that such equipment
                  is exchanged for credit against the purchase price of similar
                  replacement equipment, or the proceeds of such sale are
                  reasonably promptly applied to the purchase price of such
                  replacement equipment.

(f) acquire or purchase a business or its assets (whether through the purchase
of assets, through merger, consolidation or otherwise) unless both before and
after giving effect thereto, both of the following conditions are satisfied: (1)
the aggregate consideration paid (whether in cash or property, by assumption of
indebtedness or otherwise) by the Borrower and its Subsidiaries for all such
acquisitions or purchases during any Fiscal Year does not exceed $5,000,000 AND
(2) no default or event of default or event which, with the giving of notice or
the passage of time, or both, would be or become an event of default under this
Agreement or any other Loan Document, shall exist. In addition to the foregoing
requirements, if the Borrower is unable to fund the entire consideration paid in
connection with an acquisition from internally generated funds and/or through
the sale of equity securities i.e., the Borrower requests a borrowing to fund a
portion of such consideration), the ratio of the Borrower's Funded Debt to
EBITDA (as such terms are defined below) after giving effect to such acquisition
must be less than 2.50 to 1.0.

As used herein, "Funded Debt" shall mean with respect to the Borrower and its
Subsidiaries determined on a consolidated basis, the following, without
duplication, (a) all indebtedness for borrowed money, whether or not evidenced
by bonds, debentures, notes or similar instruments (excluding inter-company
indebtedness), (b) all obligations as lessee under capitalized leases, (c) all
obligations to pay the deferred purchase price of property or services
(excluding trade accounts payable in the ordinary course of business), (d) all
indebtedness secured by a lien whether or not such indebtedness shall have been
assumed, and (e) all obligations, contingent or otherwise, with respect to the
face amount of all letters of credit (whether or not drawn) and banker's
acceptances.

As used herein, "EBITDA" shall mean with respect to the Borrower and its
Subsidiaries determined on a consolidated basis, for any period without
duplication, the

sum for such period of (a) net income, plus (b) interest expense, ~l (c) tax
expense, ~l (d) depreciation, amortization and other noncash charges; provided
that in calculating net income for any period, there shall be excluded all
extraordinary or nonrecurring gains or losses during such period.


                                        5
<PAGE>


         2.8 Term Loan. Section 1.2 of the Agreement is hereby restated as
"Intentionally Omitted". Upon the effectiveness of this Amendment, the Borrower
shall prepay all outstanding principal and accrued interest on the term loan.
Upon receipt of such prepayment, the Term Loan Commitment shall be cancelled and
the Bank shall return the Term Note to the Borrower marked "Paid and Cancelled".

3. Warranties. To induce the Bank to enter into this Amendment, the Borrower
warrants that:

         3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and the Replacement Revolving Note referred to in Section
4.1 hereof (the "Note") and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.

         3.2 No Conflicts. The execution and delivery of this Amendment and the
Note and the performance by the Borrower of its obligations under the Agreement,
as amended hereby, do not and will not conflict with any provision of law or of
the articles of incorporation or by-laws of the Borrower or of any agreement
binding upon the Borrower.

         3.3 Validity and Binding Effect. The Agreement, as amended hereby, and
the Note are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.

         3.4 Representations and Warranties. After giving effect to this
Amendment, each of the representations and warranties set forth in the Agreement
are true and correct on, and as of, the date hereof.

4. Conditions Precedent To Amendments. This Amendment shall be effective as of
the date hereof, subject to the satisfaction of each of the following conditions
precedent:

         4.1 Documentation. The Borrower shall have delivered to the Bank all of
the following, each duly executed and dated the closing date hereof, in form and
substance satisfactory to the Bank:

              (a) Amendment. ThIis Amendment;

              (b) Note. A Replacement Revolving Note in the form of Exhibit A
hereto;

              (c) Reaffirmation of Fuel-Tech N.V. Fuel-Tech N.V. shall have
executed and delivered to the Bank a Reaffirmation of Subordination Agreement in
the form of Exhibit B hereto;

              (d) Guaranty of Fuel Tech SRL. Fuel Tech SRL ("SRL") shall have
executed and delivered to the Bank a Guaranty in the form of Exhibit C hereto
(the "SRL Guaranty");


                                        6


<PAGE>


              (e) Authorization of Borrower. Evidence that the execution,
delivery and performance of this Amendment and the Note have been duly
authorized, along with evidence of the incumbency and a specimen signature, of
each officer of the Borrower executing this Amendment and the Note;

              (f) Authorization of SRL. Evidence that the execution, delivery
and performance of the SRL Guaranty have been duly authorized, along with
evidence of the incumbency and a specimen signature, of each officer of SRL
executing the SRL Guaranty; and

              (g) Other. Such other instruments, documents or agreements as the
Bank may reasonably request.

         4.2 No Default. As of the date hereof, no Default shall exist, after
giving effect to this Amendment.

         4.3 Warranties. As of the date hereof, the warranties in Section 3 of
this Amendment shall be true and correct on, and as of, such date.

5. General.

         5.1 Expenses. The Borrower agrees to pay the Bank upon demand for all
expenses, including reasonable attorneys' fees incurred by the Bank in
connection with the preparation, negotiation and execution of this Amendment and
any document required to be furnished therewith.

         5.2 Law. This Amendment shall be construed in accordance with, and
governed by, the internal laws of the State of Illinois.

         5.3 Successors. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and the successors and assigns of the Bank.

         5.4 Confirmation of the Agreement. The Agreement, as amended hereby,
shall remain in full force and effect and is hereby ratified and confirmed in
all respects.

         5.5 References to the Agreement. Each reference in the Agreement to
"this Agreement," "hereunder," "hereof," or words of similar import to documents
provided for in the Agreement or delivered or to be delivered thereunder or in
connection therewith, shall, except where the context otherwise requires, be
deemed a reference to the Agreement as amended hereby.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>b323572_ex23-1.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>




                                                                   Exhibit 23.1



                         Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-83068 dated August 16, 1994 and No. 333-36390 dated May 5, 2000)
pertaining to The 1993 Incentive Plan of Fuel Tech N.V. of our report dated
February 19, 2003, with respect to the consolidated financial statements of Fuel
Tech N.V. included in this Annual Report on Form 10-K for the year ended
December 31, 2002.


                                Ernst & Young LLP


Chicago, Illinois
March 11, 2003




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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