<PAGE>   1
                                                                  EXHIBIT 10.17

                              EMPLOYMENT AGREEMENT

         Employment Agreement dated and effective as of July 1, 1998 (this
"AGREEMENT"), between ILLINOIS SUPERCONDUCTOR CORPORATION, a Delaware
corporation (with its successors and assigns, referred to as the "COMPANY"), and
EDWARD W. LAVES ("LAVES").

                              PRELIMINARY STATEMENT

         Laves is currently employed by the Company pursuant to an Amended and
Restated Employment Agreement between the Company and Laves dated and effective
as of July 1, 1997 (the "PRIOR AGREEMENT").

         The Company desires to continue to employ Laves, and Laves wishes to
continue to be employed by the Company, upon certain terms and conditions not
contained in the Prior Agreement, including an extension of the term of Laves'
employment. In order to specify such terms and conditions, and extend the term
of Laves' employment with the Company, Laves and the Company agree as follows:

                                    AGREEMENT

         1. EMPLOYMENT FOR TERM. The Company hereby employs Laves and Laves
hereby accepts employment with the Company for the period beginning on July 1,
1998 and ending on December 31, 1999 (the "TERM"), or upon the earlier
termination of the Term pursuant to Section 6 below. The end of the Term for any
reason shall end Laves' employment under this Agreement, but shall not terminate
Laves' or the Company's other obligations in this Agreement.

         2. POSITION AND DUTIES. During the Term, Laves shall continue to serve
as the Chairman of the Board, President and Chief Executive Officer of the
Company. During the Term, Laves shall also hold such additional positions and
titles as the Board of Directors of the Company (the "BOARD") may determine from
time to time. During the Term, Laves shall devote substantially all of his
business time and best efforts to his duties as an employee of the Company.

         3.    COMPENSATION.

               (a) BASE SALARY. Effective as of June 11, 1998 and ending on
December 31, 1999, the Company shall pay Laves a base salary at a rate of
$200,000 per annum, payable at least monthly on the Company's regular pay cycle
for professional employees.

               (b) BONUSES. Laves shall be eligible to receive bonuses of up to
fifty percent (50%) of his base salary during Term as determined in the sole
discretion of the Board.

               (c) OTHER AND ADDITIONAL COMPENSATION. Sections 3(a) and 3(b)
establish minimum salary and bonus grant levels for Laves during the Term, and
shall not preclude the Board from awarding Laves a higher salary or stock
options at any time, nor shall they preclude the Board from awarding Laves
bonuses or other compensation in the discretion of the Board.

         4.    EMPLOYEE BENEFITS. During the Term, Laves shall be entitled to
the employee benefits, including vacation, health and other insurance benefits,
and deferred compensation arrangements, made available by the Company to any
other employee of the Company.

         5.    EXPENSES. The Company shall reimburse Laves for actual 
out-of-pocket expenses incurred by him in the performance of his services for
the Company (in accordance with the Company's policy for such reimbursements
applicable to the Company's executive officers on the same terms generally
offered to such officers), upon the receipt of appropriate documentation of such
expenses.

         6.    TERMINATION.



<PAGE>   2


               (a) GENERAL. The Term shall end immediately upon Laves' death.
The Company may end the Term at any time for any reason or no reason, with or
without "Cause" (as defined in Section 7(a) below) in the absolute discretion of
the Board (but subject to the Company's obligations under this Agreement).

               (b) NOTICE OF TERMINATION. Promptly after it ends the Term, the
Company shall give Laves notice of termination, including a statement of whether
the termination was for Cause. The Company's failure to give notice under this
Section shall not, however, affect the validity of the Company's termination of
the Term.

         7.    SEVERANCE BENEFITS.

               (a) "CAUSE" DEFINED. "Cause" means willful malfeasance or willful
misconduct by Laves in connection with his employment; Laves' gross negligence
in performing any of his duties under this Agreement; Laves' conviction of, or
entry of a plea of guilty to, or entry of a plea of nolo contendere with respect
to, any crime other than a traffic violation or infraction which is a
misdemeanor; Laves' willful and continuing breach of any written policy
applicable to all employees adopted by the Company concerning conflicts of
interest, political contributions, standards of business conduct or fair
employment practices, procedures with respect to compliance with securities laws
or any similar matters, or adopted pursuant to the requirements of any
government contract or regulation; or material and continuing breach by Laves of
any of his agreements in this Agreement.

               (b) TERMINATION WITHOUT CAUSE. If the Company ends the Term prior
to December 31, 1999, other than for Cause, then the Company shall make the
"Severance Payment" (as defined below) to Laves for and during the "Severance
Period" (as defined below). The Severance Payment shall be payable in
proportionate amounts at least monthly on the Company's regular pay cycle for
professional employees and (if the last day of the Severance Period is not the
last day of a pay period) on the last day of the Severance Period. Regardless of
anything in this Agreement to the contrary, if Laves resigns as a result of a
material change, or a related series of changes taken as a whole, in the scope
or nature of his responsibilities as President and Chief Executive Officer of
the Company, such change or changes shall be deemed to be a constructive
termination of Laves' employment by the Company without Cause for all purposes
of this Agreement, including without limitation the obligation of the Company to
make the Severance Payments during the Severance Period.

               For purposes of this Agreement: (i) the term "SEVERANCE PAYMENT"
means, for the period of 180 days from the commencement of the Severance Period,
an amount equal to Laves' base salary in effect on the day prior to the date on
which the Severance Period commences, and thereafter during the Severance Period
an amount equal to 50% of Laves' base salary in effect at the time the Severance
Period commenced; and (ii) the term "SEVERANCE PERIOD" means the period
commencing on the day following the date of termination of Laves' employment
with the Company and ending on the first anniversary of the date of termination,
subject to earlier termination as of the date that Laves commences full time
employment with any other person or entity.

               Laves agrees that during the Severance Period he shall endeavor
to render reasonable advisory and consulting services to the Company with
respect to matters pertaining to the business of the Company as the Board of
Directors or the then Chairman of the Board may reasonably request in writing,
provided that the Company acknowledges and agrees that Laves shall be obligated
to perform such services only to the extent that Laves determines in his
discretion that such services shall not interfere with the conduct of Laves'
then current business and personal affairs at the time of any such request. The
Company shall pay all reasonable out-of-pocket expenses incurred by Laves in the
performance of such advisory and consulting services.

               (c) TERMINATION FOR ANY OTHER REASON. If the Company ends the
Term for Cause, or, subject to the first paragraph of Section 7(b) above, if
Laves resigns as an employee or officer of the Company, or if Laves dies, then
the Company shall have no obligation to pay Laves any amount, whether for
salary, benefits, bonuses, or other compensation or expense reimbursements of
any kind, accruing after the end of the Term, and such rights shall, except as
otherwise required by law, be forfeited immediately upon the end of the Term.

               (d) OPTION MATTERS. If the Company ends the Term without Cause,
the Company and 




<PAGE>   3

Laves agree that notwithstanding any term or provision of any agreement between
Laves and the Company to the contrary, (i) all options held by Laves to acquire
shares of the common stock of the Company at the time of termination shall
immediately become vested, and shall be immediately exercisable by Laves or his
personal representative, and (ii) Laves (or his personal representative, as the
case may be) shall have the right to exercise such vested options, and all other
options previously vested in Laves prior to the date of termination, for a
period of 365 days following such end of the Term. Laves and the Company agree
that except as set forth above, all option agreements referred to above shall
remain in full force and effect in accordance with their terms.

         8.    CONFIDENTIALITY, OWNERSHIP, AND COVENANTS OF NON-COMPETITION AND
NON-SOLICITATION.

               (a) "COMPANY INFORMATION" AND "INVENTIONS" DEFINED. "COMPANY
INFORMATION" means all information, knowledge or data of or pertaining to (i)
the Company, and (ii) any other person, firm, corporation or business
organization with which the Company may do business during the Term, that is not
in the public domain (and whether relating to methods, processes, techniques,
discoveries, pricing, marketing or any other matters). "INVENTIONS" collectively
refers to any and all inventions, trade secrets, ideas, processes, formulas,
source and object codes, data, programs, other works of authorship, know-how,
improvements, discoveries, developments, designs, and techniques regarding any
of the foregoing.

               (b) CONFIDENTIALITY. Except as provided in the next two
sentences, Laves covenants and agrees that all Company Information shall be kept
secret and confidential at all times during and after the end of the Term and
shall not be used or divulged by him outside the scope of his employment as
contemplated by this Agreement, except as the Company may otherwise expressly
authorize by action of the Board. In the event that Laves is requested in a
judicial, administrative or governmental proceeding to disclose any of the
Company Information, Laves will promptly so notify the Company so that the
Company may seek a protective order or other appropriate remedy and/or waive
compliance with this Agreement. If disclosure of any of the Company Information
is required, Laves may furnish the material so required to be furnished, but
Laves will furnish only that portion of the Company Information that legally is
required.

               (c) OWNERSHIP. Laves hereby assigns to the Company all of Laves'
right (including patent rights, copyrights, trade secret rights, and all other
rights throughout the world), title and interest in and to Inventions, whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by Laves, either alone or jointly
with others, during the course of the performance of services for the Company.
Laves shall also assign to, or as directed by, the Company, all of Laves' right,
title and interest in and to any and all Inventions, the full title to which is
required to be in the United States government by a contract between the Company
and the United States government or any of its agencies. The provisions of
Sections 8(a), 8(b) and this Section 8(c) are not intended to supersede or limit
the effect of any prior confidentiality or proprietary rights agreements
previously executed by Laves.

               (d) PERIODS DEFINED. "NON-COMPETITION PERIOD" means the period
beginning on the day following the date of termination of Laves' employment with
the Company and ending on the first anniversary of the day following the date of
termination of Laves' employment with the Company. "NON-SOLICITATION PERIOD"
means the period beginning on the day following the date of termination of
Laves' employment with the Company and ending on the second anniversary of the
day following the date of termination of Laves' employment with the Company.

               (e) COVENANTS OF NON-COMPETITION AND NON-SOLICITATION. Laves
acknowledges that his services pursuant to this Agreement are unique and
extraordinary, that the Company will be dependent upon Laves for the development
and growth of its business and related functions, and that he will continue to
develop personal relationships with significant customers of the Company and to
have control of confidential information concerning, and lists of customers of,
the Company. Laves further acknowledges that the business of the Company is
international in scope and cannot be confined to any particular geographic area
of the United States. For the foregoing reasons, Laves covenants and agrees that
during the Non-Competition Period Laves shall not, directly or indirectly,
engage in, be financially interested in, represent, render any advice or
services to, or be employed by, any other business (conducted for profit or not
for profit) that is engaged in the development or production of (i) high
temperature superconducting materials, (ii) radio frequency filter devices, or



<PAGE>   4



(iii) fault current limiter devices, in any such case for or related to uses
which are or could reasonably deemed to be competitive with the current or
currently contemplated business of the Company in the world. For the reasons
acknowledged by Laves at the beginning of this Section, Laves additionally
acknowledges, covenants, and agrees that, during the Non-Solicitation Period,
Laves shall not, directly or indirectly, whether on his own behalf or on behalf
of any other person or entity, in any manner (A) solicit the business of or
otherwise contact in any commercial capacity any person or entity that is, or is
reasonably anticipated to become, at the date of termination to become, a
customer, supplier, or contractor of the Company for the purpose of obtaining
business of the type performed by the Company, or (B) solicit for employment any
persons who were officers or employees of the Company upon the date of
termination of his employment hereunder, or at any time during a ninety-day
period preceding such date, or aid any competitive business organization in any
attempt to hire any such officers or employees of the Company. Notwithstanding
the foregoing, this Section (e) shall terminate and be of no further force or
effect if the Company fails to make any payment or otherwise perform any
obligation owed to Laves pursuant to Sections 3, 4, 5 and 7(b) above.

               (f) EQUITABLE REMEDIES. Laves acknowledges, covenants and agrees
that, in the event he shall violate any provisions of this Section 8, the
Company will not have an adequate remedy at law and will therefore be entitled
to enforce each such provision by temporary or permanent injunctive or mandatory
relief obtained in an action or proceeding without the necessity of posting any
bond of any kind whatsoever, and without prejudice to any other remedies that
may be available at law or in equity. The foregoing restrictions shall not
preclude Laves from the ownership of not more than three percent (3%) of the
voting securities of any corporation whose voting securities are registered
under Section 12(g) of the Securities Exchange Act of 1934, even if its business
competes with that of the Company.

         9.    SUCCESSORS AND ASSIGNS.

               (a) LAVES. This Agreement is a personal contract, and the rights
and interests that the Agreement accords to Laves may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him. Except as contemplated in
Section 7(d) above, Laves shall not have any power of anticipation, alienation
or assignment of the payments contemplated by this Agreement, all rights and
benefits of Laves shall be for the sole personal benefit of Laves, and no other
person shall acquire any right, title or interest under this Agreement by reason
of any sale, assignment, transfer, claim or judgment or bankruptcy proceedings
against Laves. Except as so provided, this Agreement shall inure to the benefit
of and be binding upon Laves and his personal representatives, distributees and
legatees.

               (b) THE COMPANY. This Agreement shall be binding upon the Company
and inure to the benefit of the Company and of its successors and assigns,
including (but not limited to) any corporation that may acquire all or
substantially all of the Company's assets or business or into or with which the
Company may be consolidated or merged. This Agreement shall continue in full
force and effect in the event that the Company sells all or substantially all of
its assets, merges or consolidates, otherwise combines or affiliates with
another business, dissolves and liquidates, or otherwise sells or disposes of
substantially all of its assets. The Company's obligations under this Agreement
shall cease, however, if the successor to, the purchaser or acquiror either of
the Company or of all or substantially all of its assets, or the entity with
which the Company has affiliated, shall assume in writing the Company's
obligations under this Agreement (and deliver an executed copy of such
assumption to Laves), in which case such successor or purchaser, but not the
Company, shall thereafter be the only party obligated to perform the obligations
that remain to be performed on the part of the Company under this Agreement.

         10.   ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties concerning Laves' employment with the Company and supersedes
all prior negotiations, discussions, understandings and agreements, whether
written or oral, between Laves and the Company relating to the subject matter of
this Agreement. All prior employment agreements, including the Prior Agreement,
between the Company and Laves shall remain in full force and effect with respect
all matters addressed in such prior employment agreements occurring on or before
the effective date of this Agreement.

         11.   AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement
may be amended or waived unless such amendment or waiver is agreed to in writing
signed by Laves and by a duly authorized officer of the Company other that
Laves. No waiver by any party to this Agreement of any breach by another party



<PAGE>   5



of any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same time, any prior time or any subsequent time.

         12.   NOTICES. All notices, demands or other communications of any kind
to be given or delivered under this Agreement shall be in writing and shall be
deemed to have been properly given if (a) delivered by hand, (b) delivered by a
nationally recognized overnight courier service, (c) sent by registered or
certified United States Mail, return receipt requested and first class postage
prepaid, or (d) facsimile transmission followed by a confirmation copy delivered
by a nationally recognized overnight courier service. Such communications shall
be sent to the parties at their respective addresses as follows:

              If to Laves:         Edward Laves

              If to the Company:   Illinois Superconductor Corporation
                                   451 Kingston Court
                                   Mount Prospect, Illinois 60056
                                   Attention:  Vice President of Human Resources

              with a copy to:      Lawrence D. Levin
                                   Katten Muchin & Zavis
                                   525 West Monroe Street, Suite 1600
                                   Chicago, Illinois 60661-3693

Either party may change such address for delivery to the other party by delivery
of a notice in conformity with the provisions of this section specifying such
change. Notice shall be deemed to have been properly given (i) on the date of
delivery, if delivery is by hand, (ii) three (3) days after the date of mailing
if sent by certified or registered mail, (iii) one (1) day after date of
delivery to the overnight courier if sent by overnight courier, or (iv) the next
business day after the date of transmission by facsimile.

         13.   SEVERABILITY. If any provision of this Agreement or the 
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable shall not be affected, and each
provision of this Agreement shall be validated and shall be enforced to the
fullest extent permitted by law. If for any reason any provision of this
Agreement containing restrictions is held to cover an area or to be for a length
of time that is unreasonable or in any other way is construed to be too broad or
to any extent invalid, such provision shall not be determined to be entirely
null, void and of no effect; instead, it is the intention and desire of both the
Company and Laves that, to the extent that the provision is or would be valid or
enforceable under applicable law, any court of competent jurisdiction shall
construe and interpret or reform this Agreement to provide for a restriction
having the maximum enforceable area, time period and such other constraints or
conditions (although not greater than those currently contained in this
Agreement) as shall be valid and enforceable under the applicable law.

         14.   SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.

         15.   HEADINGS. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience of reference, and no
provision of this Agreement is to be construed by reference to the heading of
any section or paragraph.

         16.   WITHHOLDING TAXES. All salary, benefits, reimbursements and any
other payments to Laves under this Agreement shall be subject to all applicable
payroll and withholding taxes and deductions required by any law, rule or
regulation of and federal, state or local authority.

         17.   APPLICABLE LAW: JURISDICTION. The laws of the State of Illinois
shall govern the 


<PAGE>   6


interpretation, validity and performance of the terms of this Agreement, without
reference to rules relating to conflicts of law. Any suit, action or proceeding
against Laves with respect to this Agreement, or any judgment entered by any
court in respect thereof, may be brought in any court of competent jurisdiction
in the State of Illinois, as the Company may elect in its sole discretion, and
Laves hereby submits to the nonexclusive jurisdiction of such courts for the
purpose of any such suit, action, proceeding or judgment.

         18.   INTERPRETATION AND CONSTRUCTION. Each of the parties to this
Agreement has been represented by their own counsel, each has reviewed and
approved this Agreement as executed, and neither party shall be charged with the
responsibility of having drafted any provision of this Agreement so as to cause
any rule of strict construction to be applied against such party.

         IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.


                                     ILLINOIS SUPERCONDUCTOR CORPORATION


                                     By:    
                                            ------------------------------------
                                            JAMES PAJCIC
                                            Vice-President Human Resources,
                                            Treasurer and Secretary


                                     -------------------------------------------
                                     EDWARD W. LAVES