<PAGE>

                                                                    EXHIBIT 10.5
                                                                    ============

                          Second Amended and Restated
                             Employment Agreement
                                      of
                                James F. Verhey


     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into
effective as of April 11, 2001 by and between JAMES F. VERHEY ("Employee") and
KAISER VENTURES INC. ("Kaiser").

                                   Recitals

     A.   Employee is currently employed by Kaiser as Executive Vice President-
Finance and Chief Financial Officer pursuant to that certain Amended and
Restated Employment Agreement dated as of September 19, 2000.

     B.   The intent of this Agreement is to further amend and to again restate
the Employment Agreement, as amended, and thus set forth the current agreement
and understanding of Employee and Kaiser with regard to Employee's continued
employment by Kaiser.

     NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1.   Employment, Positions and Duties.  Kaiser hereby continues the
employment of Employee upon the terms and conditions set forth in this
Agreement.  Employee's positions with Kaiser shall continue to be Executive Vice
President and Chief Financial Officer.  Employee shall have the responsibilities
and duties normally incident to such positions, including, but not limited to,
those duties and responsibilities set forth in Schedule "A" attached hereto and
                                               ============
incorporated herein by this reference and such other duties and responsibilities
as may be reasonably assigned to him from time-to-time by Kaiser's President or
Chief Executive Officer.  Employee agrees to devote fifty percent (50%) of his
full business time and attention to the discharge of his duties and
responsibilities under this Agreement with Employee generally being present at
Kaiser's corporate offices Monday through Thursday, every other week, until such
time as Kaiser's shareholders approve the sale, restructuring, liquidation,
merger of Kaiser or other similar alternative which is expected to occur in 2001
(collectively a "Transaction").  Upon the occurrence of a Transaction,
Employee's time commitment to Kaiser will be reduced to an average of six (6)
days per month with Employee's work schedule to be coordinated with Kaiser's
Chief Executive Officer.  There shall be no reduction in Employee's annual base
salary or benefits as a result of Employee's reduced time commitment after the
occurrence of a Transaction.  Kaiser and Employee acknowledge the need for
flexibility in Employee's work schedule so that Employee agrees to adjust his
general schedule to give priority to, assist in the preparation for, and attend
important meetings for Kaiser that may occasionally be scheduled at times other
than Employee's general work schedule.

     2.   Term.  Employee's employment under the terms of this Agreement shall
commence as of September 19, 2000, and shall continue until terminated as
provided herein; provided, however, upon Employee's termination, Employee shall
receive the severance compensation provided herein.

     3.   Base Salary.  Except in connection with the payment of any severance
as provided herein, Employee's initial annual base salary shall be one hundred
twenty-three thousand ($123,000) per year.

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<PAGE>

     Notwithstanding anything contained in this Agreement to the contrary, for
the purposes of determining the amount of severance benefits to be paid to
Employee for any reason, Employee's base salary shall be deemed to be his base
salary as of September 30, 1999 (which was $201,825), and not the new initial
annual salary provided in this Paragraph 3.

     Prior to the first meeting of the Board of Directors in any calendar year,
the Human Relations Committee of the Board will review Employee's salary and
report its recommendations for any revision to the full Board at such meeting.

     4.   Bonus Program.

          a.   Discontinuance of Annual Performance Bonus. Employee acknowledges
that the Company has discontinued its historical annual performance bonus
program applicable to all executive officers for calendar years beginning in
2001. Employee acknowledges and agrees that any future bonus shall be in the
total discretion of the Board of the Directors of Kaiser, except for: (i) the
Retention Bonus described in Paragraph 4.b.; (ii) any bonus pursuant to the long
term Transaction Incentive Plan described in Paragraph 4.c.; and (iii) any bonus
described in Paragraph 11.

          b.   Retention Bonus. Provided Employee remains in the employ of
Kaiser through and including June 20, 2003, Kaiser shall pay to Employee a bonus
("Retention Bonus") on that date equal to the sum of (i) six months annual base
salary (based on Employee's annual base salary in effect on September 30, 1999)
plus (ii) an amount equal to 26.9% of the base salary in effect on September 30,
1999 (this is equivalent to six months' of the average annual bonus (cash and
stock, but not including either stock options or stock grants outside of the
annual bonus or the Long Term Incentive Plan payment as described in 4(c) below)
as measured by Employee's average percentage bonus paid over the five (5) years
prior to and including the final annual bonus for the year 2000 paid under
Kaiser's annual performance bonus program; provided, such amount shall be
determined as if Employee's base salary is no less than his base salary in
effect on September 30, 1999).

          c.   Long Term Incentive Plan. Employee shall be eligible to receive
payments in accordance with the terms of the Long Term Transaction Incentive
Plan adopted by Kaiser effective September 19, 2000, to be effective as of June
30, 2000 (the "Long Term Transaction Incentive Plan").

     5.   Stock Options and Other Stock Related Incentives.  Employee shall be
eligible for the grant of incentive stock options, non-qualified stock options
and other forms of stock related incentives from time-to-time in the discretion
of the Stock Option Committee of the Board of Directors.  The timing, size and
amount of any future stock options or other stock related incentives will be
determined generally in accordance with the process used to determine the award
of any bonus to Employee.  The grant and exercise of the stock options and other
stock related incentives shall generally be subject to and governed by the terms
of an approved stock plan, stock option plan or any similar or successor option
plan.  However, the Stock Option Committee may award stock options, restricted
stock or other stock related incentives outside an approved stock plan in its
discretion.

     Kaiser acknowledges and agrees that all stock options granted to Employee
prior to the date of this Agreement are fully vested in Employee.

     6.   Other Benefits.  Except as otherwise provided herein, Employee will be
entitled to participate in all benefits provided by Kaiser to its employees and
to senior executives in accordance with and subject to Kaiser's polices and
procedures as they may exist and change from

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<PAGE>

time-to-time (although the total amount of the benefit may be correspondingly
reduced if it is based on annual base salary), including, but not limited to,
medical and dental insurance, life insurance, disability insurance, 401(k)
savings plan, any pension plan, deferred compensation plan, education and
seminar reimbursement, and reimbursement of reasonable expenses for company
business. These benefits shall include life insurance for the benefit of
Employee with a face amount of not less than Employee's annual base salary in
effect as of September 30, 1999, except that Kaiser may self-insure if insurance
is not available on a commercially reasonable basis.

     Notwithstanding the foregoing, Employee shall not:  (i) accrue vacation
time; and (ii) be paid a car allowance.  However, these provisions shall not be
construed to cause any reduction in the severance compensation and benefits as
provided in this Agreement.  In addition to paying the normal and reasonable
business expenses typically reimbursed in the course of work for Kaiser, Kaiser
shall pay Employee's reasonable travel expenses to and from Kaiser's corporate
offices and reasonable hotel expenses while working at Kaiser's corporate
offices.  Employee shall pay all of his personal meals.

     7.   Restricted Stock.  Any restricted stock issued by Kaiser in lieu of
cash payments in connection with Employee's base salary or any bonus, shall be
subject to the terms and conditions of a stock restriction agreement which may
provide, among other things, for the forfeiture of such stock in phases if
Employee should voluntarily terminate his employment with Kaiser within a
certain period of time or upon Employee's termination for "cause", as defined
herein.

     8.   Death Benefits.  In the event of Employee's death, Kaiser shall pay to
Employee's personal representative or his estate, Employee's salary and benefits
through the end of the month in which the death occurred plus a ratable portion
of Employee's anticipated bonus, if any, for the year through the date of
Employee's death.  Employee's anticipated bonus shall be calculated based upon
the performance bonus, if one is paid to his peers for the year of Employee's
death by Board of Directors action, assuming that he would have received a bonus
relatively equal to the amount received by his peers.  If a bonus has been
earned by Employee for the preceding fiscal year but has not yet been paid prior
to the death of Employee, Employee's estate or personal representative shall be
paid the full amount of the earned but unpaid bonus.  In addition, Kaiser shall
pay, from time to time, any payment that is due under the terms of the Long Term
Transaction Incentive Plan as provided in Paragraph 4(c) of this Agreement.  The
proceeds from any such life insurance shall be for the sole benefit of
Employee's designated beneficiaries or if there are no designated beneficiaries,
Employee's estate.  Upon an Employee's death, all restricted stock issued to
Employee for past services (e.g. bonus stock), shall immediately vest and all
restricted stock initially issued for anticipated future services (e.g. salary
stock) will vest ratably through the date of death.  Employee's estate or
personal representative shall have at least one (1) year after the date of
Employee's death while in the employment of Kaiser in which to exercise all
vested Stock Options.

     9.   Disability Benefits.  In the event of the disability of Employee for
any reason, Kaiser shall continue to pay to Employee his salary and benefits
less short-term disability payments until long-term disability payments are made
to Employee but in no event shall such salary and benefit payments continue for
longer than six (6) months from the date of disability.  In addition, upon
permanent disability, the vesting of all retirement and deferral compensation
plans and all outstanding options, restricted stock or other stock related
incentives shall continue to occur for a period of two (2) years after the date
of disability in the same manner as if Employee were still employed by Kaiser
during that period.

     10.  Deductions.  Applicable federal and state income taxes, social
security contributions (FICA), Medicare contributions, medical insurance
premiums and any other appropriate or customary deductions shall be withheld
from any compensation paid to Employee by Kaiser.

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<PAGE>

     11.  Transition Payment.  In recognition of the reduction of Employee's
time commitment and his eventual transition from being an employee of the
Company, Employee shall be paid a transition payment of $155,203.50 on January
2, 2002 ("Transition Payment").  This Transition Payment represents an
acceleration of the payment of severance in an amount equal to the sum of (i)
six months of Employee's annual base salary (based on Employee's annual base
salary in effect as of September 30, 1999); and (ii) an amount equal to 26.9% of
the base salary as determined in (i) above.

     12.  Constructive Termination.  Employee shall be deemed to have been
constructively discharged upon the occurrence of any of the following events:

          a.   The assignment to Employee of duties materially and adversely
inconsistent with Employee's positions as of the effective date of this
Agreement.  This includes a change in reporting responsibilities, authority
including title, or responsibilities; provided, however, a lateral transfer
within Kaiser or to an Affiliate shall not be deemed a constructive termination;

          b.   Any requirement that Employee permanently relocate to an office
more than 50 miles from the then location to which he is assigned as of the
effective date of this Agreement; and/or

          c.   Any failure to provide Employee with compensation and benefits in
the aggregate on terms not materially less favorable than those enjoyed by
Employee under this Agreement immediately prior to a Transaction, or the
subsequent taking of any action that would materially reduce any of Employee's
compensation and benefits in effect at the time of the Transaction unless such
compensation and benefits are substantially equally reduced for executive
officers of Kaiser as a group (as measured by a percentage) or there is less
than a ten percent (10%) reduction in compensation or benefits.

     then, at Employee's option, exercisable within ninety (90) days of the date
Employee knew, or should have known exercising reasonable care, of the
occurrence of any of the foregoing events and the expiration of any applicable
cure period, Employee shall have the right to terminate his employment by
written notice to Kaiser, and on the date of such termination Kaiser will pay
Employee the compensation and benefits described in Paragraph 13 below.

     13.  Compensation Payable Upon Actual or Constructive Termination.  In the
event Employee is terminated by Kaiser for any reason (including a constructive
termination) except for death, permanent disability, or for cause, as defined
below, Kaiser shall give Employee ninety (90) days advance written notice of
termination and Kaiser shall pay to Employee only the following compensation and
benefits as severance following the expiration of the ninety (90) day period:

          a.   if the termination is effective after March 31 of any year, an
amount equal to the pro rata portion of the annual performance bonus, if any,
that Employee would have been eligible to earn for the year of termination based
upon the performance bonus, if one is paid to his peers for the year of
termination by Board of Directors action, assuming he would have received a
bonus relatively equal to the amount received by his peers;

          b.   if not previously paid to Employee, the Retention Bonus due
Employee under Paragraph 4 of this Agreement shall be immediately paid to
Employee;

          c.   if not previously paid to Employee, the Transition Payment due
Employee under Paragraph 11 of this Agreement shall be immediately paid to
Employee;

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<PAGE>

          d.   any payments that become due Employee under the terms of Kaiser's
Long Term Transaction Incentive Plan (which payments can continue to be made to
Employee beyond the date of Employee's termination in accordance with the terms
of the Long Term Transaction Incentive Plan);

          e.   Kaiser shall continue to provide and pay its portion of all of
Employee's health, welfare, insurance and other benefits for a period of twelve
(12) months following the date of termination, including Kaiser's portion of any
retirement and deferred compensation plan such as Kaiser's 401(k) plan. After
such termination, Employee shall be entitled, for a period of three years to
exercise his stock options as to any then vested, including any options vesting
within one year of termination as provided in the next sentence, notwithstanding
any other applicable provision contained in any option agreement. In addition to
the foregoing related to stock options, with respect to any restricted stock or
other stock related incentives, Employee shall continue to vest in such
securities for a period of one-year following termination. Employee shall also
for the three year period in which he is entitled to exercise his vested stock
options as provided in this Paragraph 13. receive the benefit of any favorable
changes to outstanding stock options made by the Company, but in all cases
Employee's stock option agreements may not be modified without Employee's
written consent; and

          f.   Employee shall have the right to participate proportionately in
stock buyback or dividend distribution in proportion to shares owned together
with all other shareholders.

     Except for payments made pursuant to the Long Term Transaction Incentive
Plan, all amounts due Employee shall be payable in one lump sum or, at
Employee's option, over such period of time not to exceed twelve (12) months.
Employee shall have no duty to seek other employment during this period of time
and there shall be no offset for any compensation paid to Employee from any
other source; provided, however, if Employee is paid a consulting fee or
receives compensation from Kaiser or an Affiliate of Kaiser for services
actually rendered during a one (1) year period from the date of termination,
unless otherwise agreed in writing, such amount shall be offset against the
payments made or due Employee.

     To illustrate the application of Paragraphs 13.b. and 13.c., if Employee is
terminated on December 15, 2001, without cause, he would receive the immediate
payment of his Transition Payment and his Retention Bonus as severance, the
total of which would be $310,407 (the equivalent of one year's salary in effect
on September 30, 1999, plus his average percentage bonus of 53.8% as applicable
to his salary on September 30, 1999).  If, however, Employee was terminated in
February 1, 2002, without cause, having already been paid his Transition Payment
on January 2, 2002, Employee would receive his Retention Bonus which would
amount to six months' salary based upon Employee's base salary in effect on
September 30, 1999, plus 26.9% of the greater of Employee's then current annual
base salary or the base salary in effect on September 30, 1999.  If Employee was
terminated on July 1, 2003, without cause, after having been paid his Transition
Payment on January 2, 2002, and his Retention Bonus on June 20, 2003, Employee
would not be paid any additional cash compensation as severance as he would have
already received his total cash severance to the compensation package of
$310,407.  In all three cases, however, Employee would be entitled benefits to
be provided to him for twelve (12) months pursuant to Paragraph 13e., and any
payments that may be due him under the Long Term Transaction Incentive Plan
pursuant to Paragraph 13d.

     14.  Possible Reduction in Certain Benefits.

          a.   Except as provided in Paragraph 13(b) below, Employee shall in
no circumstances receive "payments in the nature of compensation" from Kaiser
which would result in

                                       5
<PAGE>

"excess parachute payments" (as that term is defined in Sections 280G and 4999
of the Internal Revenue Code of 1954, as amended, or any equivalent or analogous
term as shall in the future be defined in any law or regulation governing the
amount of severance compensation that may be paid without penalty to an officer
of a company upon a change in control of Kaiser). In the event either Employee
or Kaiser shall be advised in writing by his or its counsel that Employee would
receive excess parachute payments if all payments under all contacts between
Employee and Kaiser were made, such opinion shall be confidentially disclosed to
the other party. If it is mutually determined that such payments would trigger
the excess parachute payments provisions, Employee shall receive only such
compensation and benefits under his contracts with Kaiser (not to exceed those
permitted without constituting excess parachute payments) which he, in his sole
discretion, has designated in written notice to Kaiser. Employee shall have a
minimum of thirty (30) days in which to make such written designation. In the
event of a disagreement between the counsel of the respective parties as to
whether a payment would result in excess parachute payments, such counsel shall
jointly designate an independent tax counsel (whose fees shall be paid by
Kaiser) within 10 days who shall promptly make a conclusive determination of the
matter.

          b.   Notwithstanding anything else to the contrary, in the event
Employee is terminated pursuant to Paragraph 13 above, Employee shall have the
right, in his sole discretion, to elect to receive all or any part of the
compensation payable to him upon termination (or which would have been due under
Paragraph 12 but for a previous election under Paragraph 14(a)) without regard
to whether any such amounts may constitute "excess parachute payments."  If
Employee fails to provide Kaiser a written designation within thirty (30) days,
he shall be presumed to have elected to receive all compensation and benefits
due him without regard to whether any such compensation or benefits shall
constitute "excess parachute payments."

          c.   Nothing in this Paragraph 14 shall be construed or deemed to be a
forfeiture of any compensation or benefits that Employee may elect not to
accelerate due to any concern about the receipt of "excess parachute payments."

     15.  Termination for Cause.  If Kaiser elects to terminate Employee's
employment for cause (as defined below Paragraph 16 below), Employee's
employment will terminate on the date fixed for termination by Kaiser and
thereafter Kaiser will not be obligated to pay Employee any additional
compensation, other than the compensation due and owing up to the date of
termination and as may be required by law.  After such termination, Employee
shall be entitled, for a period of one hundred and twenty (120) days, to
exercise any stock options or other stock related incentives that are vested as
of the date of termination.

     16.  Definition of "Cause."  "Cause" for the purposes of this Agreement
shall mean any of the following:

          a.   Willful breach by Employee of any provision of this Agreement,
provided, however, if the breach is not a material breach, Kaiser shall give
Employee written notice of such breach and Employee shall have thirty (30) days
in which to cure such breach.  No written notice or cure period shall be
required in the event of a willful and material breach of this Agreement by
Employee;

          b.   Gross negligence or dishonesty in the performance of Employee's
duties or responsibilities hereunder;

          c.   Engaging in conduct or activities or holding any position that
materially conflicts with the interest of, or materially interferes with
Employee's duties and responsibilities to Kaiser or its Affiliates; or

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<PAGE>

          d.   Engaging in conduct which is materially detrimental to the
business of Kaiser or its Affiliates.

     17.  Voluntary Termination.  Employee's employment by Kaiser may be
terminated at any time upon the parties' mutual written agreement or voluntarily
by either party upon ninety (90) days prior written notice to the other.  Upon
termination of Employee by Kaiser for any reason (including a constructive
termination) except for death, permanent disability or for cause, Employee shall
receive the compensation and benefits set forth in Paragraph 13 of this
Agreement.  In the event of a mutual written agreement, Employee's severance
benefits shall be as set forth in such agreement.  In the event of Employee's
voluntary termination of employment prior to a Transaction, Kaiser shall not be
obligated to pay Employee any additional compensation, other than the
compensation due and owing as through the date of termination and as may be
required by law, as well as any bonus amounts that become due Employee under the
terms of Kaiser's Long Term Transaction Incentive Plan (which payments can
continue to be made to Employee beyond the date of Employee's termination in
accordance with the terms of the Long Term Transaction Incentive Plan).  In the
event of Employee's voluntary termination after a Transaction, Kaiser shall not
be obligated to pay Employee any compensation except as follows:  (i) the
compensation due and owing as through the date of termination and as may be
required by law; (ii) any bonus amounts that become due Employee under the terms
of Kaiser's Long Term Transaction Incentive Plan (which payments can continue to
be made to Employee beyond the date of Employee's termination in accordance with
the terms of the Long Term Transaction Incentive Plan); and (iii) Employee's
Transition Payment Bonus as provided in Paragraph 11 as of the effective date of
the voluntary termination; and (iv) Employee shall also receive six (6) months
(instead of twelve (12) months) of the paid benefits described in Paragraph
13(f).  After voluntary termination by Employee, Employee shall be entitled for
a period of one hundred twenty (120) days to exercise any stock options or other
stock related incentives that are vested as of the date of termination.

     18.  Confidentiality.

          a.   Employee's Obligations. Employee agrees that (a) except as
provided in this Agreement Employee shall maintain the confidential nature of
any Proprietary Information received or acquired by him, and (b) Employee shall
use such Proprietary Information solely for the purpose of meeting his
obligations under this Agreement and not in connection with any other business
or activity. "Proprietary Information" means all oral, written or recorded
information about or related to Kaiser or any of its Affiliates or its or their
technology, assets, liabilities, or business, whether acquired before or after
the date hereof, and regardless of the manner in which it is acquired, together
with any documents or other materials prepared by Employee which contain or
reflect such information. After termination of employment upon demand of Kaiser,
Employee agrees to return or destroy any and all materials containing any
Proprietary Information.

          b.   Kaiser's Obligations. Kaiser agrees that it shall maintain and
provide information regarding Employee in accordance with generally accepted
industry and business practices.

          c.   Limitations on Confidential Obligations and Use Restrictions. The
restrictions in Paragraph 18(a) above do not apply to information which Employee
can demonstrate (i) is then in the public domain by acts not attributable to
such disclosing party or (ii) is hereafter received on an unrestricted basis by
such Employee from a third party source who, to Employee's knowledge after due
inquiry, is not and was not bound by confidentiality obligations to Kaiser or
any Affiliate thereof. In addition, Employee and Kaiser are permitted to
disclose any Proprietary Information as necessary in the defense or prosecution
of any legal action.

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<PAGE>

          d.   Actions if Disclosure Required. If Employee is required by law to
make any disclosure otherwise prohibited hereunder, such party shall use its
best efforts to provide the other with prompt prior notice where possible so
that (a) the other party (with the reasonable cooperation of the party required
to make such disclosure) may seek an appropriate protection order or other
remedy and/or (b) the parties can seek in good faith to agree on the appropriate
scope and approach to disclosure. If a protective order or other remedy is not
obtained, the party required to make such disclosure may furnish only that
portion of information protected hereby which it is legally compelled to
disclose and shall use its reasonable efforts to obtain confidential treatment
for all information so disclosed.

          e.   Injunction. Each party agrees that remedies at law may be
inadequate to protect against breach of this Paragraph 18, and hereby agrees to
the granting of injunctive relief without proof of actual damage.

     19.  Arbitration of Disputes.  If Employee and Kaiser cannot resolve a
dispute (whether arising in contract or tort or any other legal theory, whether
based on federal, state or local statute or common law and regardless of the
identities of any other defendants) that in any way relates to or arises out of
this Agreement, the termination of Employee's employment relationship with
Kaiser or any Affiliate thereof, (without limiting the generality of any other
Paragraph herein), then such dispute shall be settled as follows:

          a.   Kaiser and Employee agree to jointly select a judicial officer
who is affiliated with the Judicial Arbitration and Mediation Service, or such
other equivalent organization as Kaiser and Employee may mutually select, to act
as the trier of fact and judicial officer in such dispute resolution;

          b.   If Kaiser and Employee are unable to agree upon a particular
judicial officer, then the decision shall be made by the chief executive officer
of the Judicial Arbitration and Mediation Service, after consulting with Kaiser
and Employee;

          c.   Kaiser and Employee shall have the same rights of discovery as if
the dispute were being resolved in the Superior Court of the State of
California. However, the judicial officer shall, on his own motion, or the
request of either Kaiser or Employee, have the authority to extend or reduce the
time periods therefore; and,

          d.   The judicial officer serving hereunder shall be designated as a
referee under the provisions of Title VIII, Chapter 6 of the California Code of
Civil Procedure (Sections 638 through 645. 1, inclusive). Payment for the
services of the judicial officer and the rights and procedure of appeal, and/or
other review of the decision, shall be made as provided in such sections.

     The judicial officer shall have the right to grant injunctive relief,
specific performance and other equitable remedies.

     20.  Miscellaneous.

          a.   Entire Agreement; Amendments.  This Agreement states the entire
understanding and agreement between the parties with respect to its subject
matter as of the date of this Agreement, and may only be amended by a written
instrument duly executed by Employee and Kaiser.

          b.   Assignment. This Agreement and the rights and obligations of
Employee may not be sold, transferred, assigned, pledged or hypothecated by
Employee.

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<PAGE>

          c.   Non-Waiver.  Failure to insist upon strict compliance with any
provision of this Agreement or the waiver of any specific event of non-
compliance shall not be deemed to be or operate as a waiver of such provision or
any other provision hereof or any other event of non-compliance.

          d.   Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Kaiser, its successors and assigns and, Employee's heirs,
successors, and legal or personal representatives.

          e.   Headings. The headings throughout this Agreement are for
convenience only and shall in no way be deemed to define, limit, or add to the
meaning of any provision of this Agreement.

          f.   Context. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender such other gender as
is appropriate.

          g.   Notices.  All notices, request, demands, consents and other
communications hereunder shall be transmitted in writing and shall be deemed to
have been duly given when hand delivered or sent by certified United States
mail, postage prepaid, with return by certified requested, addressed to the
parties as follows:

                  Kaiser Ventures Inc.
                  3633 E. Inland Empire Blvd., Suite 850
                  Ontario, CA  91764

                  James F. Verhey
                  4221 Big Ranch Road
                  Napa, CA  94558

          h.   Costs. In any action taken to enforce the provisions of this
Agreement, the prevailing party shall be reimbursed all reasonable costs
incurred in such legal action including reasonable attorney's fees in such
action.

          i.   Severability. If any provision or clause of this Agreement, as
applied to any party or circumstances shall be adjudged by a court to be invalid
or unenforceable, said adjudication shall in no manner effect any other
provision of this Agreement, the application of such provision to any other
circumstances or the validity or enforceability of this Agreement.

          j.   Definition of Affiliate. The term "Affiliate" for purposes of
this Agreement shall mean any person or entity now or hereafter in control,
controlled by or in common control with Kaiser. It shall also include any direct
or indirect subsidiary of such Corporation and any company in which Kaiser has
more than a ten percent (10%) ownership interest.

          k.   Acknowledgment Regarding ISO's.  Employee acknowledges that he is
responsible for the tax consequences of all severance compensation he may
receive and that certain actions may need to be taken by Employee within limited
periods of time to preserve the tax status of any incentive stock options.
Kaiser makes no representation or warranty that any past or future grant of a
stock option to Employee qualifies as an incentive stock option.

          l.   Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

                                       9
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement to be effective as of the day and year first written above not
withstanding the actual date of signature.

"Employee"                            "Kaiser"
James F. Verhey                       Kaiser Ventures Inc.


By: /s/ James F. Verhey               By: /s/ Richard E. Stoddard
    ----------------------------          -------------------------------------
     James F. Verhey                       Richard E. Stoddard, Chairman of the
                                            Board, Chief Executive Officer and
                                            President


                                      By:  /s/ Todd G. Cole
                                           ------------------------------------
                                            Todd G. Cole, Chairman,
                                            Human Relations Committee

                                       10
<PAGE>

                                 Schedule "A"
                                 ============

                                JAMES F. VERHEY
                   Executive Vice President - Finance & CFO

     This position will report to the President and Chief Executive Officer.

Responsibilities:

     This position has the responsibility to manage all accounting, finance,
tax, and treasury functions for Kaiser and its subsidiaries; to represent Kaiser
with all outside entities coming under the purview of corporate finance; to
ensure all reporting requirements are met in a satisfactory and timely manner;
to assist senior management in analyzing, evaluating and pursuing new business
and growth opportunities; to manage Kaiser's annual budget and capital plan
processes; to manage Kaiser's financial analysis and modeling function; to
manage Kaiser's insurance program; and to monitor all project development
activities from the financial perspective.  These duties include the following:

     .  Assist CEO in analyzing, evaluating and pursuing business and growth
        opportunities.
     .  Oversee investor relations program implementation, shareholder/investor
        communications.
     .  Oversee implementation of real estate financing strategy.
     .  Manage and oversee financial aspects of SEC compliance.
     .  Oversee the treasury and controller functions. Oversee all audit
        procedures, outside auditors, and report to the Chairman of the Audit
        Committee.
     .  Manage all aspects of the accounting function of Kaiser, employing
        Generally Accepted Accounting Procedures.
     .  Manage Kaiser's annual budget and capital plan processes.
     .  Manage Kaiser's financial analysis and modeling function.
     .  Manage all tax planning and reporting.
     .  Manage all debt and equity structuring.
     .  Manage all insurance programs.
     .  Manage and oversee the Kaiser Eagle Mountain, operations, insuring both
        smooth functioning of all administrative departments and operations.
     .  Monitor all project development activities from the financial
        perspective.
     .  Participate in major negotiations with third parties.
     .  Direct and manage, in coordination with the Executive Vice President and
        General Counsel, the operations of Kaiser in the absence of the Chief
        Executive Officer.

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