<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OR ANY STATE SECURITIES LAWS AND, ACCORDINGLY, THE TRANSFER,
RESALE OR OTHER DISPOSITION OF SUCH SECURITIES MAY ONLY BE MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR A VALID EXEMPTION
THEREFROM AND IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS, AND BY
DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL FOR THE COMPANY THAT
THERE IS SUCH AN EXEMPTION.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN WARRANT AGREEMENT DATED AS OF AUGUST 28, 1996, BY AND
BETWEEN THE HOLDER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

           EXERCISABLE ONLY ON OR BEFORE 5:00 P.M. NEW YORK CITY TIME
                                December 31, 2001

No. W-2                                                         423,149 Warrants

                               WARRANT CERTIFICATE
                       WAHLCO ENVIRONMENTAL SYSTEMS, INC.

          This Warrant Certificate certifies that WEXFORD SPECIAL SITUATIONS
1996 INSTITUTIONAL, L.P., or registered assigns, is the registered holder (the
"Holder") of FOUR HUNDRED TWENTY-THREE THOUSAND ONE HUNDRED FORTY-NINE (423,149)
Warrants (the "Warrants") expiring December 31, 2001 to purchase common stock of
Wahlco Environmental Systems, Inc., a Delaware corporation (the "Company"). Each
Warrant entitles the Holder to purchase from the Company, on or after the
issuance hereof, and on or before 5:00 p.m. New York City time on December 31,
2001 one fully paid and nonassessable share of common stock of the Company, par
value S.01 per share ("Common Stock"), at the exercise price (the "Exercise
Price") at the time in effect under the Warrant Agreement (as hereinafter
defined), payable in lawful money of the United States of America, upon
surrender of this Warrant Certificate and payment of such Exercise Price to the
Company in New York, New York, but only subject to the conditions set forth
herein and in the Warrant Agreement; PROVIDED, HOWEVER, that the number or kinds
of shares of Common Stock or other securities (or in certain events other
property) purchasable upon exercise of the Warrants and the Exercise Price
referred to herein may as of the date of this Warrant Certificate have been, or
may after such date be, adjusted as a result of the occurrence of certain
events, as more fully provided in the Warrant Agreement. Payment of the Exercise
Price shall be made by certified or official bank check payable to the order of
the Company.

          No Warrant may be exercised after 5:00 p.m. New York City time on
December 31, 2001 (the "Expiration Date").

          The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to a Warrant Agreement, dated as of
August 28, 1996 (the "Warrant Agreement"), duly executed and delivered by the
Company, which Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Company and Holder. initially capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Warrant Agreement. A copy
of the Warrant Agreement is

<PAGE>

available for inspection at the Company, located at 3600 West Segerstrom Avenue,
Santa Ana, California 92704, during regular business hours.

          Warrants may be exercised to purchase shares of Common Stock from the
Company at any time, or from time to time on or after the date hereof and on or
before the Expiration Date, at the Exercise Price then in effect. The Holder may
exercise the Warrants represented by this Warrant Certificate by surrendering
the Warrant Certificate with the Form of Exercise set forth hereon properly
completed and executed, together with payment of the Exercise Price at the time
in effect, to the Company; PROVIDED, HOWEVER, that a Holder who is also a
creditor of the Company may exercise Warrants by payment as herein provided,
cancellation of indebtedness or a combination thereof. In the event that an
exercise of Warrants evidenced hereby shall be an exercise of less than the
total number of Warrants evidenced hereby, there shall be issued to Holder or
Holder's assignee a new Warrant Certificate evidencing the number of Warrants
not exercised. No adjustment will be made for any dividends on any shares of
Common Stock issuable upon exercise of this Warrant.

          The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price may, subject to certain conditions, be adjusted and
under certain circumstances the Warrant may become exercisable for securities or
other assets other than the shares of Common Stock referred to on the face
hereof. If the Exercise Price is adjusted, the Warrant Agreement provides that
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be adjusted.

          The Company may, but shall not be required to, issue fractions of
shares of Common Stock or any certificates that evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company shall
make a cash payment therefor equal in amount to the product of the applicable
fraction multiplied by the current market price then in effect.

          Subject to the terms and conditions contained in the Warrant
Agreement, the Warrants represented by this Warrant Certificate are
transferable, in whole or in part, upon surrender of this Warrant Certificate to
the Company, together with a written assignment of the Warrant on the Form of
Assignment or Partial Assignment, as the case may be, set forth hereon or in
other form satisfactory to the Company, duly executed by Holder or Holder's duly
appointed legal representative, and together with funds to pay any transfer
taxes payable in connection with such transfer. Upon such surrender and payment,
a new Warrant Certificate shall be issued and delivered in the name of the
assignee and in the denomination or denominations specified in such instrument
of assignment. If less than all of the Warrants represented by this Warrant
Certificate are being transferred, a new Warrant Certificate or Certificates
shall be issued for the portion of this Warrant Certificate not being
transferred.

          This Warrant Certificate may be divided or combined with other Warrant
Certificates upon surrender hereof to the Company, together with a written
notice specifying the names and denominations in which new Warrant Certificates
are to be issued, signed by Holder or Holder's duly appointed legal
representative, and together with the funds to pay any transfer taxes payable in
connection with such transfer. Upon such surrender and payment, a new Warrant
Certificate or Certificates shall be issued and delivered in accordance with
such notice.

          The Company shall make no service or other charge in connection with
any such transfer or exchange of this Warrant Certificate (notwithstanding any
notation of ownership or other


                                       -2-

<PAGE>

writing hereon made by anyone), for the purpose of any exercise hereof, any
distribution to Holder hereof, and for all other purposes.

          This Warrant Certificate shall not be valid unless countersigned by
Holder by the manual signature of one of its authorized officers.

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.

                                        WAHLCO ENVIRONMENTAL SYSTEMS, INC..

                                        By: /s/ illegible
                                           ------------------------------
                                        Name:
                                        Title:


Dated: November 15, 1996

Attest:

/s/ Anne L. Anderson
------------------------------

[Countersigned:]

------------------------------

By: /s/ illegible
   ---------------------------
      Authorized Officer



                                       -3-

<PAGE>

                               [FORM OF EXERCISE]

                    [To be executed upon exercise of Warrant]

          The undersigned (the "Holder" hereby irrevocably elects to exercise
the right, represented by Wahlco Environmental Systems, Inc. Warrant Certificate
No. W-2, to purchase ___________ shares of Wahlco Environmental Systems, Inc.,
in the amount of $______ in accordance with the terms hereof. The undersigned
requests that a certificate for such Common Stock be registered in the name of
_____ (insert social security or other identifying number) whose address is
_______.  If said number of ________ shares of Common Stock is less than all of
the shares of Common Stock purchasable under Wahlco Environmental Systems, Inc.
Warrant Certificate No. W-2, Holder requests that a new Warrant Certificate
representing the remaining balance of the shares of Common Stock be registered
in the name of Holder and that such Warrant Certificate be delivered ______ to
whose address is __________________________________________

Dated: __________,_____.

                                        WEXFORD SPECIAL SITUATIONS 1996
                                          INSTITUTIONAL, L.P.

                                        By:
                                           ------------------------------
                                        (Signature must conform in all respects
                                        to name of Holder as specified on the
                                        face of the Warrant Certificate.)

------------------------------
(Insert Social Security or
Taxpayer Identification
Number of Holder)

Signature Guaranteed:



------------------------------

<PAGE>

                              [FORM OF ASSIGNMENT]

              (To be executed to transfer the Warrant Certificate)

          FOR VALUE RECEIVED, WEXFORD SPECIAL SITUATIONS 1996 LIMITED hereby
sells, assigns and transfers unto_____________________________________________
______________________________________________________________________________
______________________________________________________________________________
(print name and address of transferee) the Warrants represented by Wahlco
Environmental Systems, Inc. Warrant Certificate No. W-2 together with all right,
title and interest evidenced thereby, and does hereby irrevocably constitute and
appoint _______________, attorney, to transfer the said Warrants on the books of
Wahlco Environmental Systems, Inc., with full power of substitution.

Dated: ______________,____.

                                        WEXFORD SPECIAL SITUATIONS 1996
                                          INSTITUTIONAL, L.P.

                                        By:
                                           ------------------------------
                                        (Signature must conform in all respects
                                        to name of Holder as specified on the
                                        face of the Warrant Certificate.)

------------------------------
(Insert Social Security
or Taxpayer Identification
Number of Holder)

Signature Guaranteed:


------------------------------

<PAGE>

                          [FORM OF PARTIAL ASSIGNMENT]

              (To be executed to transfer the Warrant Certificate)

          FOR VALUE RECEIVED, WEXFORD SPECIAL SITUATIONS 1996 LIMITED (the
"Holder") hereby sells, assigns and transfers unto ____________________________
(print name and address of transferee) ____________ Warrants represented by
Wahlco Environmental Systems, Inc. Warrant Certificate No. W-2, together with
all right, title and interest evidenced thereby, and does hereby irrevocably
constitute and appoint _________________, attorney, to transfer said Warrants on
the books of Wahlco Environmental Systems, Inc., with full power of
substitution. Holder requests that a new Warrant Certificate representing the
remaining balance of Warrants represented by Wahlco Environmental Systems, Inc.
Warrant Certificate No. W-2 be registered in the name of Holder and that such
Warrant Certificate be delivered to _________________________ whose address is
___________________________________________________.

Dated: __________,___.

                                        WEXFORD SPECIAL SITUATIONS 1996
                                          INSTITUTIONAL, L.P.

                                        By:
                                           ------------------------------
                                        (Signature must conform in all respects
                                        to name of Holder as specified on the
                                        face of the Warrant Certificate.)

------------------------------
(Insert Social Security or
Taxpayer Identification
Number of Holder)

Signature Guaranteed:


------------------------------