Document:

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                                                                   EXHIBIT 10.25

                                ESCROW AGREEMENT

         THIS ESCROW AGREEMENT is made and entered into this 8th day of August,
2000, by and among Illinois Superconductor Corporation, a Delaware corporation
("Parent"), American National Bank and Trust Company of Chicago, as escrow agent
("Escrow Agent"), Russell Scott III (the "Stockholder Representative"), as
stockholder representative by and on behalf of Spectral Solutions, Inc., a
Colorado Corporation (the "Company") (collectively, the "Stockholders") as
designated on Schedule A hereto.

WHEREAS, the Company, Parent and SSI Acquisition Corp, a Colorado corporation
and a wholly-owned subsidiary of Parent ("Sub"), have entered into an Agreement
and Plan of Merger dated May 17, 2000 (the "Merger Agreement"), pursuant to
which Sub will be merged into Company (the "Merger") and Company will thereby
become a wholly-owned subsidiary of Parent; and

         WHEREAS, the Stockholder Representative and certain other Stockholders
of the Company listed on Schedule B hereto (the "Option Stockholders") have
entered into an Option and Exclusive Dealing Agreement dated May 17, 2000 (the
"Option Agreement"), pursuant to which, among other things, such Stockholders
have granted to Parent an option to purchase (the "Option") and certain voting
rights with respect to the shares of the Preferred Stock, $.001 par value per
share ("Company Preferred Stock"), and Common Stock, $.001 par value per share
("Company Common Stock"), of Company owned by such Option Stockholders (the
"Acquired Shares"), which Acquired Shares are listed on Schedule B hereto (which
Schedule may be amended from time to time to reflect the acquisition of
additional shares of Company Preferred Stock or Company Common Stock by a
writing delivered to the Escrow Agent and executed by Parent and the Shareholder
Representative); and

         WHEREAS, the Merger Agreement and the Option Agreement contain certain
indemnification provisions for the benefit of Parent; and

         WHEREAS, as security for the performance of such indemnification
provisions, the Merger Agreement and the Option Agreement provide for the
execution and delivery of this Escrow Agreement; and

         WHEREAS, a copy of each of the Merger Agreement and the Option
Agreement have been delivered to the Escrow Agent, and the Escrow Agent is
willing to act as the Escrow Agent hereunder;

         NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

         1. Terms. All terms defined in the Merger Agreement shall have the same
meanings when used herein.

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         2. Delivery of Parent Common Stock and Cash Dividends to Escrow.

         (a) Initial Delivery of Effective Time. In the event of the
consummation of the Merger, pursuant to Section 2.1(e) of the Merger Agreement,
at the Effective Time, Parent will deliver to the Escrow Agent written notice of
such consummation and transfer to the Escrow Agent 166,427 shares of Parent
Common Stock registered in the name of the Escrow Agent in the stock register
maintained by Parent and/or its transfer agent, being the required number of
shares of Parent Common Stock plus cash to be paid in lieu of delivery of a
fraction of a share of Parent Common Stock which shall be used by the Escrow
Agent to create a fund (the "Escrow Fund"), subject to the terms and conditions
of this Escrow Agreement.

         (b) Initial Delivery at Option Closing Date. In the event of the valid
exercise of the Option pursuant to Section 8.4 of the Option Agreement, at the
Option Closing Date, Parent will deliver written notice to the Escrow Agent of
such exercise and transfer to the Escrow Agent 5% of the number of shares of
Parent Common Stock payable to the Option Stockholders pursuant to Section 8.1
of the Option Agreement, being the required number of shares of Parent Common
Stock plus cash to be paid in lieu of delivery of a fraction of a share of
Parent Common Stock which shall be used by the Escrow Agent to create the Escrow
Fund, subject to the terms and conditions of this Escrow Agreement. The shares
delivered pursuant to this Section 2(b) shall be registered in the name of the
Escrow Agent in the stock register maintained by Parent and/or its transfer
agent.

         (c) Stock Dividends and Splits. In the event of any stock dividend,
stock split or similar recapitalization with respect to the shares of Parent
Common Stock which becomes effective while shares of Parent Common Stock are
held in the Escrow Fund, the additional shares of Parent Common Stock issued
shall be added to the Escrow Fund and shall be subject to the terms and
conditions of this Escrow Agreement as if such shares were initially delivered
at the Effective Time or the Option Closing Date, as the case may be.

         (d) Cash Dividends. All cash dividends with respect to the shares of
Parent Common Stock held in the Escrow shall be paid and delivered to the Escrow
Agent for deposit into the Escrow Fund.

         3. Escrow Fund Income. The Escrow Agent shall invest any cash contained
in the Escrow Fund and any and all cash dividends or other cash income produced
by the shares of Parent Common Stock and other investments held in the Escrow
Fund ("Profits") in marketable obligations issued or guaranteed by the United
States of America or its agencies or instrumentalities and having maturities not
exceeding 90 days, as the Stockholder Representative (with the written consent
of Parent, which will not be unreasonably withheld or delayed) may from time to
time direct. In the absence of such investment instructions, all moneys on
deposit in the Escrow Fund shall be invested by the Escrow Agent in the One
Group Prime Money Market Fund or a similar or successor fund offered by the
Escrow Agent. The Profits and any shares of Parent Common Stock delivered to the
Escrow Agent in respect of the initial shares of Parent Common Stock delivered
into the Escrow shall constitute part of the Escrow Fund.

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         4. Claims.

         (a) Notice of Claims. Upon determination by Parent that it has a claim
for indemnification under Section 11.2 or Section 11.3 of the Merger Agreement
or Section 3.6 of the Option Agreement, as the case may be, Parent shall notify
the Stockholder Representative in writing of the claim and shall deliver a copy
of such notice to the Escrow Agent (with additional copies as provided in
Section 8(h) of this Escrow Agreement). The Escrow Agent shall pay to Parent
from the Escrow Fund only, in the manner specified in Section 4(b) below: (i)
the amount of such claim by Parent if thirty (30) days shall have expired since
the Parent delivered to the Escrow Agent and the Stockholder Representative a
copy of the written notice of the amount claimed and the Escrow Agent shall not
have received written notice within such time from any Stockholder
Representative that the amount of the claim is being contested; (ii) the amount
of any claim, or portion thereof, directed to be so paid in any written notice
received by the Escrow Agent from the Stockholder Representative; or (iii) the
amount of any claim, or portion thereof, directed to be paid in any written
notice received by the Escrow Agent from the Arbitrators (as defined below).

         (b) Payment for Claims. All claims of Parent against the Escrow Fund
shall be paid to Parent out of the assets held in the Escrow Fund in the
following order of priority: (A) first, to the extent of any cash held in the
Escrow Fund; (B) second, to the extent of any assets other than cash and shares
of Parent Common Stock which are to be sold or liquidated for the purpose of
paying such claims; and (C) third, shares of Parent Common Stock, which shares
for such purposes shall be valued at the average closing price per share of
Parent Common Stock as reported on the Nasdaq Stock Market (or the NASD's
electronic bulletin board, for any day that Parent Common Stock is not eligible
for trading on the Nasdaq Stock Market) for the ten trading days immediately
preceding the third business day prior to the date of such withdrawal from the
Escrow (the "Average Closing Price") (which per share price shall be adjusted
for any stock dividend or stock split or similar recapitalization); provided,
however, that in the event that the Average Closing Price is unavailable or can
not be so calculated, the value of any shares of Parent Common Stock shall be
determined by the mutual agreement of Parent and the Stockholder Representative,
and in the event such an agreement can not be reached, by arbitration in
accordance with Section 4(c) hereof . In the event that assets other than cash
and shares of Parent Common Stock are required to be sold to pay a claim of
Parent in the amount and at the date determined in accordance with this Section
4, the Escrow Agent shall so notify both Parent and the Stockholder
Representative and Parent shall have twenty (20) days from the time the Escrow
Agent delivers notice thereof to instruct the Escrow Agent as to which non-cash
assets of the Escrow Fund are to be sold or liquidated for the purpose of paying
the claim.

         (c) Arbitration. Any dispute as to the amount of a claim by Parent
against the Escrow Fund for indemnification under Section 11.2 or Section 11.3
of the Merger Agreement or Section 3.6 of the Option Agreement, as the case may
be, shall be determined by arbitration and shall be settled by three arbitrators
(the "Arbitrators"), one of whom shall be appointed by Parent, one by the
Stockholder Representative and the third of whom shall be appointed by the first
two arbitrators. If either party fails to appoint an arbitrator within 10 days
of a request in writing by the other party to do so or if the first two
arbitrators cannot agree on the appointment of a third arbitrator within 10
days, then such arbitrator shall be appointed by the American Arbitration
Association. Except as to the selection of arbitrators which shall be as set
forth

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above, the arbitration shall be conducted promptly and expeditiously in
Chicago, Illinois or such other place agreed to between Parent and the
Stockholder Representative in accordance with the rules of the American
Arbitration Association then in effect so as to enable the arbitrators to
determine the amount of such claim within 45 days of the commencement of the
arbitration proceedings. Each party shall bear the expenses of its arbitrator
and shall jointly and equally share with the other the expenses of the third
arbitrator and the arbitration. Any decision of the Arbitrators shall be final,
conclusive and binding upon the parties hereto and the Stockholders.

         5. Distribution and Termination.

         (a) Fund Distribution.

         (i) As soon as practicable after the first to occur of (i) March 31,
2001 and (ii) thirty days after delivery to Parent by its auditors of audited
financial statements of the Surviving Corporation for the calendar year 2000
(with notice of such delivery to be promptly provided by the Parent to the
Escrow Agent) (the "Distribution Date"), and subject to the other provisions of
this Section 5, the Escrow Agent shall distribute the Escrow Fund, as provided
below, to those who are (a) in the case of consummation of the merger, the
Stockholders of the Company immediately prior to the Effective Time designated
on Schedule A hereto in accordance with their interests as set forth in Schedule
A hereto and (b) in the case of exercise of the Option, the Option Stockholders
in accordance with their pro rata share of the number of Acquired Shares
purchased by Parent from all Option Stockholders. The pro rata portion (the "Pro
Rata Portion") shall be based upon the percent of which the number of shares of
Acquired Shares owned by each Option Stockholder bears to the total number of
shares of Acquired Shares owned by all Option Stockholders and purchased by
Parent.

         (ii) Notwithstanding the above, however, if any claims for indemnity
under the Merger Agreement or the Option Agreement, as the case may be, (of
which the Stockholder Representative and the Escrow Agent have received written
notice on or before the Distribution Date) remain pending on the Distribution
Date, the Escrow Agent shall withhold in the Escrow Fund an amount equal to such
pending claims.

         (iii) Subject to Sections 6 and 7 hereof, all amounts in the Escrow
Fund on the Distribution Date in excess of all pending claims shall be
immediately distributed (a) in the case of the consummation of the Merger, to
the Stockholders in accordance with their interests as set forth in Schedule A
attached hereto and (b) in the case of the exercise of the Option, to the Option
Stockholders in accordance with their Pro Rata Portion.

         (iv) For purposes of determining the number of shares of Parent Common
Stock or the amount of cash to be delivered to the Stockholders in the case of
the consummation of the Merger or the Option Stockholders in the case of the
exercise of the Option, as the case may be, and retained in the Escrow Fund
following the Distribution Date, all shares of Parent Common Stock held in the
Escrow Fund shall be valued at the Average Closing Price per share as determined
pursuant to Section 4(b) above (which per share price shall be adjusted for any
stock dividend or stock split or similar recapitalization) and all other assets
shall be valued at their fair market value as of such date.

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         (v) On the Distribution Date the assets held in the Escrow Fund
available to be distributed to the Stockholders in the case of the consummation
of the Merger or the Option Stockholders in the case of the exercise of the
Option shall be distributed in the following order of priority: (A) first, to
the extent of any cash held in the Escrow Fund; (B) second, to the extent of any
assets other than cash and shares of Parent Common Stock which are to be sold or
liquidated for the purpose of making such distribution; and (C) third, shares of
Parent Common Stock.

         (b) Withheld Assets. Any assets withheld pursuant to this Section shall
be retained by the Escrow Agent in the Escrow Fund until (i) thirty (30) days
shall have expired since the Parent delivered to the Escrow Agent and the
Stockholder Representative a copy of the written notice of the amount claimed
and the Escrow Agent shall not have received written notice within such time
from the Stockholder Representative that the Stockholder Representative contests
the amount of the claim, at which time the Escrow Agent shall pay the Parent the
amount of such claim, (ii) the Escrow Agent receives written direction from
Parent and the Stockholder Representative directing the Escrow Agent to disburse
assets, in which case disbursement shall be made in accordance with such
direction, (iii) the Escrow Agent receives a written notice from the Stockholder
Representative directing that any pending claim, or any portion thereof, be
paid, in which case payment of such pending claim or portion thereof shall be
made in accordance with such notice, or (iv) the Escrow Agent receives a written
notice from the Arbitrators directing that a pending claim, or any portion
thereof, be paid, in which case payment of such pending claim or portion thereof
shall be made in accordance with such notice. At such time as any claim pending
on the Distribution Date is no longer pending, the Escrow Agent shall distribute
(a) to the Stockholders in accordance with Schedule A hereto in the case of
consummation of the Merger or (b) to the Option Stockholders in their Pro Rata
Portion, any balance of the assets withheld in respect of that claim remaining
after disposition of that claim.

         (c) Disposition of Pending Claims. A claim shall be considered disposed
of and no longer pending when (x) an event set forth in Section 4(a)(i) or (ii)
or Section 5(b)(i), (ii) or (iii) of this Escrow Agreement has occurred (unless
there are amounts still under claim after giving effect to the amounts paid) or
(y) the Escrow Agent has received a written notice from the Arbitrators
directing that a pending claim or any portion thereof, be paid and the Escrow
Agent has distributed to Parent any amount required pursuant to Section
4(a)(iii) or Section 5(b)(iv) of this Escrow Agreement.

         (d) Termination. When the entire Escrow Fund has been distributed in
accordance with Section 4 and/or this Section 5, this Escrow Agreement shall
terminate.

         (e) Distribution of Parent Common Stock. In connection with any
distribution of shares of Parent Common Stock under this Section 5, Escrow Agent
shall forward the existing stock certificate to the transfer agent for the
Parent Common Stock with instructions that such certificate be cancelled in
exchange for new stock certificates issued in the names of the Stockholders or
the Option Stockholders, as the case may be, or, pursuant to the written
direction of such stockholder, to his or her assignee, with any balance of
Parent Common Stock to be returned to the Escrow Agent and Parent hereby agrees
that it will direct the transfer agent to so issue the new certificates and
deliver such certificates to the Escrow Agent for redelivery to the Stockholders
or the Option Stockholders, as the case may be.

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         6. Stockholder Representative. By the execution and delivery of this
Agreement, the Stockholders hereby irrevocably constitute and appoint Russell
Scott III as the true and lawful agent and attorney-in-fact of the Stockholders
with full power of substitution to act in the name, place and stead of the
Stockholders with respect to the escrow arrangements contemplated by this
Agreement, and to act on behalf of the Stockholders in any dispute, claim,
litigation or arbitration involving this Agreement, to do or refrain from doing
all such further acts and things, and to execute all such documents as the
Stockholder Representative shall deem necessary or appropriate in connection
with the transactions contemplated by this Agreement and Russell Scott III
hereby accepts appointment as Stockholder Representative. If Russell Scott III
dies or otherwise becomes incapacitated and unable to serve as Stockholder
Representative, Robert Paige shall serve as the new Stockholder Representative.
The appointment of the Stockholder Representative shall be deemed coupled with
an interest and shall be irrevocable, and Parent, the Escrow Agent, and any
other person may conclusively and absolutely rely, without inquiry, upon any
action of the Stockholder Representative in all matters referred to herein. All
payments and notices made or delivered by Escrow Agent or Parent to the
Stockholder Representative for the benefit of the Stockholders shall discharge
in full all liabilities and obligations of Escrow Agent or Parent to the
Stockholders with respect thereto. The Stockholders hereby confirm all that the
Stockholder Representative shall do or cause to be done by virtue of his
appointment as the Stockholder Representative of the Stockholders.

         7. Stockholder Representatives Liability. The Stockholder
Representative shall not be personally liable to any of the Stockholders or the
Parent for any act which he may do or omit to do under this Escrow Agreement in
good faith and in the exercise of his own best judgment. Any act done or omitted
by the Stockholder Representative in the absence of gross negligence or willful
misconduct shall be deemed conclusively to have been performed or omitted in
good faith by the Stockholder Representative.

         8. Miscellaneous.

         (a) Escrow Agent Obligations. The obligations and duties of the Escrow
Agent are confined to those specifically enumerated in this Escrow Agreement.
The Escrow Agent shall not be subject to, nor be under any obligation to
ascertain or construe the terms and conditions of any other instrument,
including without limitation the Merger Agreement and the Option Agreement,
whether or not now or hereafter deposited with or delivered to the Escrow Agent
or referred to in this Escrow Agreement, nor shall the Escrow Agent be obliged
to inquire as to the form, execution, sufficiency, or validity of any such
instrument as to the identity, authority, or rights of the person or persons
executing or delivering the same, including successor Stockholder
Representatives.

         (b) Escrow Agent Liability. The Escrow Agent shall not be personally
liable for any act which it may do or omit to do hereunder in good faith and in
the exercise of its own best judgment. Any act done or omitted by the Escrow
Agent in the absence of gross negligence or willful misconduct shall be deemed
conclusively to have been performed or omitted in good faith by the Escrow
Agent. The Escrow Agent shall not be held liable for any losses that may occur
as the result of the investment or reinvestment of the Escrow Fund.

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         (c) Conflicts. If the Escrow Agent should receive or become aware of
any conflicting demands or claims with respect to this Escrow Agreement, or the
rights of any of the parties hereto, or any money, property, or instruments
deposited herein or affected hereby, the Escrow Agent shall have the right in
its sole discretion, without liability for interest or damages, to discontinue
any or all further acts on its part until such conflict is resolved to its
satisfaction and/or to commence or defend any action or proceeding for the
determination of such conflict.

         (d) Indemnification of Escrow Agent. Subject to the provisions of
Section 8(b) hereof, Parent and the Stockholders, jointly and severally, hereby
agree to indemnify and hold harmless the Escrow Agent from and against all
costs, damages, judgments, attorney's fees (whether such attorneys shall be
regularly retained or specially employed), expenses, obligations, and
liabilities of every kind and nature which the Escrow Agent may incur, sustain,
or be required to pay in connection with or arising out of this Escrow
Agreement, and all such costs, damages, judgments, attorney's fees, expenses,
obligations, and liabilities shall be paid equally by Parent and Stockholders.
The obligations of the Parent and the Stockholders hereunder shall survive the
termination of this Agreement and the resignation or removal of the Escrow
Agent.

         (e) Escrow Agent's Conduct; Fees. In performing its duties hereunder,
the Escrow Agent may rely on statements furnished to it by an officer of the
Parent or by the Stockholder Representative, or on any other evidence deemed by
the Escrow Agent to be reliable. The Escrow Agent shall be entitled to the
payment of an annual fee in the amount of $3,500 payable in advance of each
year's service, which shall be paid by Parent.

         (f) Voting of Parent Common Stock. The Stockholder Representative shall
have the right to exercise all voting rights with respect to the shares of
Parent Common Stock held in the Escrow Fund.

         (g) Successors. This Escrow Agreement shall be binding on and inure to
the benefit of the Stockholders, Stockholder Representative, Parent and Escrow
Agent and their respective successors and permitted assigns (but not the heirs
of the Stockholder Representative in such Stockholder's capacity as Stockholder
Representative).

         (h) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon the earlier of delivery thereof if by
hand or upon receipt if sent by mail (registered or certified mail, postage
prepaid, return receipt requested) or on the second next business day after
deposit if sent by a recognized overnight delivery service or upon transmission
if sent by telecopy or delivery service or upon transmission if sent by telecopy
or facsimile transmission (with request of assurance of receipt in a manner
customary for communication of such type) as follows:

         To the Stockholder
         Representative:

               Russell Scott III
               38 Sunset Drive
               Englewood, Colorado
               Telecopy:

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         With copies to:
         --------------

                  Gelt, Paddison & Zinn, P.C.
                  303 E. 17th Avenue
                  Suite 910
                  Denver, Colorado 80203
                  Telecopy: (303) 830-9400

         To Parent:
         ---------

                  Illinois Superconductor Corporation
                  451 Kingston Court
                  Mount Prospect, Illinois 60056
                  Attention: Chief Executive Officer
                  Telecopy:  (847) 299-9609

                  and

                  Illinois Superconductor Corporation
                  C/o Elliott Associates
                  712 Fifth Avenue
                  New York, New York 10019
                  Attention: Mark Brodsky
                  Telecopy: (212) 974-2092

         With a copy to
         --------------

                  Sonnenschein Nath & Rosenthal
                  8000 Sears Tower
                  233 South Wacker Drive
                  Chicago, Illinois  60606
                  Attention:  Michael D. Rosenthal, Esq.
                  Telecopy: (312) 876-7934

         To the Escrow Agent:
         -------------------

                  American National Bank and Trust Company of Chicago
                  120 S. LaSalle Street
                  4th Floor
                  Mail Code  IL1-1250
                  Chicago, Illinois  60603
                  Attention:  Kevin M. Ryan
                  Telecopy  (312) 661-6491

         (i) New Escrow Agent. The Escrow Agent may resign as such following the
giving of forty-five (45) days prior written notice to the other parties hereto.
If the Escrow Agent shall decline or cease to act as Escrow Agent, the Parent
and the Stockholder Representative

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shall appoint a successor. In the event Parent and the Stockholder
Representative cannot agree on a successor, the matter shall be submitted to
binding arbitration through the American Arbitration Association. Parent and the
Stockholder Representative shall split the costs of such arbitration equally and
shall each pay their own expenses related thereto. If the other parties hereto
or an arbitrator shall have failed to appoint a successor prior to the
expiration of forty-five (45) days following receipt of the notice of the Escrow
Agent's resignation, the Escrow Agent may appoint a successor or petition any
court of competent jurisdiction for the appointment of a successor escrow agent
or for other appropriate relief, and any such resulting appointment shall be
binding upon all of the parties hereto.

         (k) Governing Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without regard to
the conflicts-of-laws rules thereof.

         (l) Jurisdiction and Venue. Each party covenants and agrees (i) that
any state or federal court within Cook County, Illinois shall have exclusive
jurisdiction of any action or proceeding relating to, or arising under or in
connection with this Agreement and Parent, each Stockholder, Stockholder
Representative, Company and Escrow Agent consent to personal jurisdiction of
such courts and waives any objection to such courts' jurisdiction, and (ii)
servicer of any summons and complaint may be made by: (A) personally delivering
a copy of such summon sand complaint to (if a natural person) the individual to
be served, (B) leaving a copy of such summons and complaint at the individual's
usual place of abode with any person over the age of 18 who is a member of such
individual's family, (C) leaving a copy of such summons and complaint at the
individual's usual place of business with the individual's assistant or
secretary, (D) delivering a copy to an agent authorized by appointment or law to
accept service of process, or (E) any other method authorized under applicable
law.

         (m) Amendment or Modification. The terms of this Escrow Agreement may
be altered, amended, modified or revoked by writing only, signed by Parent, the
Escrow Agent and the Stockholder Representative.

         (n) Reports from Escrow Agent. The Escrow Agent shall furnish to the
Parent and the Stockholder Representative quarterly reports listing each
transaction made by the Escrow Agent during such quarter with respect to this
Escrow Agreement.

         (o) Counterparts. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.

         (p) Headings. The article and section headings contained in this Escrow
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Escrow Agreement.

         (q) Waiver of Compliance; Consents. Any failure of the parties hereto
to comply with any obligation, covenant, agreement or condition contained herein
may be waived in writing by the other parties hereto, respectively, but such
waiver or failure to insist upon strict

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compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure.

         (r) Validity. The invalidity or unenforceability of any provision of
this Escrow Agreement shall not affect the validity or enforceability of any
other provisions of this Escrow Agreement, which shall remain in full force and
effect.

         (s) Assignment. This Escrow Agreement shall not be assigned other than
by operation of law, except that it may be assigned by Parent to one or more of
its affiliates who agree in writing to be bound by the provisions hereof;
provided, that Parent remains obligated under this Escrow Agreement. No
assignment of the interest of any of the parties hereto shall be binding upon
the Escrow Agent unless and until written evidence of such assignment in form
satisfactory to the Escrow Agent shall be filed with and accepted by the Escrow
Agent.

         (t) Investments. The Escrow Agent is hereby authorized to execute
purchases and sales of investments through the facilities of its own trading or
capital markets operations or those of any affiliated entity. Although the
Parent and the Stockholders recognize that they may obtain a broker confirmation
or written statement containing comparable information at not additional cost,
they hereby agree that confirmations of investment are not required to be issued
by the Escrow Agent for each quarter in which a quarterly statement is rendered.
The Escrow Agent shall have no responsibility or liability for any diminution in
value of any assets held hereunder which may result from any investments or
reinvestments made in accordance with the provisions hereof.

         (u) Damages. IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE DIRECTLY OR
INDIRECTLY FOR ANY (I) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED
HEREUNDER, OTHER THAN DAMAGES WHICH RESULT FROM THE ESCROW AGENT'S FAILURE TO
ACT IN ACCORDANCE WITH THE REASONABLE COMMERCIAL STANDARDS OF THE BANKING
BUSINESS, OR (II) SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE ESROW AGENT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

         (v) Advice of Counsel; Agents. The Escrow Agent shall have the right,
but not the obligation, to consult with counsel of choice and shall not be
liable for action taken or omitted to be taken by Escrow Agent either in
accordance with the advice of such counsel or in accordance with any opinion of
counsel to the Parent or the Stockholders addressed and delivered to the Escrow
Agent. The Escrow Agent shall have the right to perform any of its duties
hereunder through agents, attorneys, custodians or nominees.

         (w) Successor Escrow Agent. Any banking association or corporation into
which the Escrow Agent may be merged, converted or with which the Escrow Agent
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent shall be a party, or any banking
association or corporation to which all or substantially all of the corporate
trust business of the Escrow Agent shall be transferred, shall succeed to all
the Escrow Agent's rights, obligations and immunities hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

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         (x) Attachment of Escrow Fund. In the event that any escrow property
shall be attached, garnished or levied upon by any court order, or the delivery
thereof shall be stayed or enjoined by an order of a court, or any order,
judgment or decree shall be made or entered by any court affecting the property
deposited under this Agreement, the Escrow Agent is hereby expressly authorized,
in its sole discretion, to obey and comply with all writs, orders or decrees so
entered or issued, which it is advised by legal counsel of its own choosing is
binding upon it, whether with or without jurisdiction, and in the event that the
Escrow Agent obeys or complies with any such writ, order or decree it shall not
be liable to any of the parties hereto or to any other person, firm or
corporation, by reason of such compliance notwithstanding that such writ, order
or decree may be subsequently reversed modified, annulled, set aside or vacated.

         (y) Tax Matters. The Escrow Agent shall report to the Internal Revenue
Service , as of each calendar year-end, all income earned from the investment of
any sum held in the escrow agent against the Stockholder, in the event deposits
are made pursuant to Section 2(a), in the percentages set forth in Schedule A or
the Option Stockholders, in the event deposits are made pursuant to Section
2(b), in their respective Pro Rata Portions, whether or not such income has been
distributed during such year, as and to the extent required by law. The Escrow
Agent shall have no responsibility for the preparation and/or filing of any tax
return with respect to any income earned by the Escrow Account, nor for any
withholding or the payment of any taxes or estimated taxes.

                                      -11-
<PAGE>   12

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

                                 Parent:

                                 ILLINOIS SUPERCONDUCTOR CORPORATION

                                 By: /s/ GEORGE M. CALHOUN
                                     ---------------------
                                        George M. Calhoun
                                        Chief Executive Officer

                                 Escrow Agent:

                                 AMERICAN NATIONAL BANK AND TRUST
                                 COMPANY OF CHICAGO, as escrow agent

                                 By: /s/ TIMOTHY P. MARTIN
                                     -------------------------------
                                         Timothy P. Martin
                                         Assistant Vice President

                                 Stockholder Representative:

                                 RUSSELL SCOTT III
                                 -----------------
                                 Russell Scott III

                                      -12-
<PAGE>   13

                                   SCHEDULE A

--------------------------------------------------------------------------------
                           Percentage Interest in      Address or Account for
   Name of Stockholder          Distribution               Distribution *
   -------------------          ------------               --------------
--------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

-----------------------
*   Subject to change upon written notice to Escrow Agent and Stockholder
    Representatives

                                      -13-
<PAGE>   14

                                   SCHEDULE B

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

                                                          Address or Account for
  Name of Option Stockholder       Acquired Shares             Distribution *
  --------------------------       ---------------             --------------
--------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

-----------------------
*   Subject to change upon written notice to Escrow Agent and Stockholder
    Representatives

                                      -14-<PAGE>   1
                                                                  EXHIBIT 10.26

                              EMPLOYMENT AGREEMENT

                  This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the
2nd day of August, 2000, by and between Illinois Superconductor Corporation, a
Delaware corporation (the "Company"), and Richard Herring (the "Employee").

                             W I T N E S S E T H :
                              - - - - - - - - - -

                  WHEREAS, the Employee is now employed with Spectral Solutions,
Inc. ("SSI") as the Chief Executive Officer;

                  WHEREAS, the Company wishes to ensure that it will have the
benefits of the Employee's services on the terms and conditions hereinafter set
forth; and

                  WHEREAS, the Employee desires to work for the Company on the
terms and conditions hereinafter set forth;

                  NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:

                  1. Employment; Term. The Company hereby employs the Employee,
and the Employee hereby accepts employment with the Company, in accordance with
and subject to the terms and conditions set forth herein. The term of this
Agreement shall commence on the date hereof (the "Effective Date") and, unless
earlier terminated in accordance with Paragraph 6 hereof, shall end on December
31, 2001, with the term of employment being that period between the Effective
Date and December 31, 2001 (the "Term"). Certain provisions of this Agreement
shall continue in effect after the Term as specifically set forth herein.

                  2.           Employment.
                               ----------

                           (a)      The Employee shall serve as Executive Vice
President of the Company.  The Employee shall report to the Chief Executive
Officer of the Company.

                           (b)      The Employee shall have such authority and
responsibility as may reasonably be assigned by the Chief Executive Officer and
the Board of Directors of the Company (the "Board").

                           (c)      During the period the Employee is employed
by the Company, the Employee shall devote the Employee's normal full business
time and attention to the business and affairs of the Company and use the
Employee's best efforts to perform faithfully the duties and responsibilities of
the Employee's position as described herein.

<PAGE>   2
                  3.           Compensation.
                               ------------

                           (a)  The Company shall pay the Employee a base salary
(the "Base Salary") of not less than One Hundred Eighty Thousand Dollars
($180,000) per annum, payable at least monthly, in accordance with the Company's
payroll practices less such deductions as shall be required to be withheld by
applicable law and regulations. The Board shall conduct an annual review of the
Employee's Base Salary and Bonus (as defined in Paragraph 3(b)below). Any
increase in the Base Salary or change in the Bonus shall be in the sole
discretion of the Board.

                           (b)      The Employee may receive such bonus, if any,
as may be determined and awarded by the Board from time to time in its sole
discretion (the "Bonus").

                  4. Stock Options. On August 2, 2000, the Board granted the
Employee an Option subject to the terms hereunder to purchase shares under the
Illinois Superconductor Corporation Amended and Restated 1993 Stock Option Plan,
as amended to date (the "Plan"), to purchase 350,000 Shares of the Company's
Common Stock at an exercise price equal to $3.25 per share in two classes of
250,000 and 100,000 shares (respectively, the "First Class Option" and the
"Second Class Option").

                           All terms, conditions and restrictions of the Plan
are made a part of this Agreement.  If there is any conflict between the terms
and conditions of the Plan or this Agreement, the terms and conditions of the
Agreement as permitted under the Plan and interpreted by the Compensation
Committee of the Board, shall govern.

                           The Employee acknowledges and represents that this
Option is not an "Incentive Stock Option."

                           (a)      Vesting.  Except as provided in Section 7
and subject to Paragraph 4(c) hereof, the vesting dates with respect to each
class are as follows:

         i.       Twenty-five percent (25%) of the shares subject to the First
                  Class Option shall become exercisable on the first anniversary
                  date of the Effective Date ("First Year Anniversary"); the
                  remaining seventy-five percent (75%) of such shares shall
                  become exercisable in thirty-six (36) substantially equal
                  monthly installments, commencing on the first month
                  anniversary of the First Year Anniversary and ending on the
                  fourth year anniversary of the Effective Date.

         ii.      If the Board appoints the Employee Chief Operating Officer of
                  the Company by no later than December 31, 2000, then the
                  shares subject to the Second Class Option shall become
                  exercisable pursuant to the vesting schedule set forth in
                  4(a)(i) above.  If the Board appoints the Employee Chief
                  Operating Officer of the Company after December 31, 2000 and
                  by no later than December 31, 2001, twenty-five percent (25%)
                  of the shares subject to the Second Class Option shall become
                  exercisable on the first anniversary date of such appointment
                  by the Board ("Appointment Anniversary"); the remaining
                  seventy-five percent (75%) of such shares shall become
                  exercisable in thirty-six (36) substantially equal monthly
                  installments, commencing on the first month anniversary of the
                  Appointment

                                     - 2 -
<PAGE>   3
                  Anniversary and ending on the fourth year anniversary of the
                  appointment by the Board.

                           (b)      Exercise of Option.  The vested portion of
this Option may be exercised in accordance ------------------ with the
procedures and methods prescribed and authorized under the Plan.

                           (c)      Post-Termination Exercise.  Subject to the
provisions of Section 7, the Option (i) to ------------------------- the extent
it was not exercisable at the time of the termination of the Employee's
employment with the Company ("the Employee's Termination") will expire upon the
Employee's Termination; and (ii) to the extent it was exercisable at the time of
the Employee's Termination shall remain exercisable for the period commencing on
the date of the Employee's Termination and ending on the earlier of sixty (60)
days after the date of the Employee's Termination or the tenth anniversary of
the date of grant of the Option.

                  5.       Benefits.

                           (a)      The Company agrees to reimburse the Employee
for all reasonable and necessary travel, business entertainment and other
business expenses incurred by the Employee in connection with the performance of
the Employee's duties under this Agreement. Such reimbursements shall be made by
the Company within a reasonable time after submission by the Employee of
vouchers in accordance with the Company's standard policies and procedures.

                           (b)      The Employee shall be entitled to
participate in any and all medical insurance, group health, disability
insurance, pension and other benefit plans which are made generally available by
the Company to its senior executives, which shall not be less favorable than
those available to any other group of employees of the Company. The Company, in
its sole discretion, may at any time amend or terminate its benefit plans or
programs.

                           (c)      The Employee shall be entitled to receive
four weeks of annual paid vacation in accordance with the Company's vacation
policy for its senior executives. The Employee shall be entitled to all paid
holidays the Company makes available to its employees.

                           6.       Termination.  The Employee's employment
hereunder may be terminated prior to the end of the Term under the following
circumstances:

                           (a)      Death.  The Employee's employment hereunder
shall terminate upon the Employee's death.

                           (b)      Total Disability.  The Company may terminate
the Employee's employment hereunder at any time after the Employee's "Totally
Disability." "Totally Disability" means (i) the Employee becomes entitled to
receive disability benefits under the Company's long-term disability plan, or,
in the absence of such a plan, (ii) the Employee's inability to perform the
duties and responsibilities contemplated under this Agreement for a period of
more than one hundred eighty (180) consecutive days due to physical or mental
incapacity or impairment. Such termination shall become effective five (5)
business days after

                                     - 3 -
<PAGE>   4
the Company gives notice of such termination to the Employee, or to the
Employee's spouse or legal representative (in case of mental incapacitation).

                           (c)      Termination by the Company With or Without
Cause.  The Company may terminate the Employee's employment hereunder with or
without Cause at any time after the Company provides thirty (30) days' written
notice (or a shorter period of time, to be determined in good faith by the Board
to be essential to prevent serious damage to the Company) to the Employee to
such effect. The term "Cause" shall mean any of the following: (i) willful
malfeasance or willful misconduct by the Employee in connection with the
Employee's employment; (ii) the Employee's gross negligence in performing any of
the Employee's duties under this Agreement; (iii) the Employee's 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; (iv) the Employee's 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 (v) any other material breach by the
Employee of this Agreement after the Company provides written notification to
employee of such breach and the Employee fails within 5 days of receipt of such
notification to cure the circumstances which gave rise to such breach.

                           (d)      Termination by the Employee With or Without
Good Reason.  The Employee's employment hereunder may be terminated by the
Employee as specified below with, or upon thirty (30) days' prior notice
without, Good Reason. For purposes of this Agreement, "Good Reason" means any of
the following: (i) any change in, or diminution of, the Employee's duties or
responsibilities that is inconsistent in any material and adverse respect with
the Employee's duties and responsibilities as contemplated under Section 2 of
this Agreement, provided that a change in the Employee's title alone, without a
corresponding material adverse change in the Employee's duties or
responsibilities shall not constitute Good Reason; (ii) any reduction of the
Employee's Base Salary or failure to receive a Bonus previously awarded by the
Board, or (iii) any requirement by the Company that the Employee relocate the
Employee's principal office (currently located in Plano, Texas) to a location
more than thirty-five (35) miles from the Employee's principal office at the
time the Company makes such request. Notwithstanding the foregoing, no act or
omission by the Company done in good faith shall constitute Good Reason
hereunder unless the Employee gives the Company written notice thereof within
thirty (30) days after he has actual knowledge of such act or omission, and the
Company fails to remedy such act or omission within thirty (30) days after
receiving such notice.

                           7.       Compensation Following Termination Prior to
the End of the Term.  In the event that the Employee's employment hereunder is
terminated prior to the end of the Term, the Employee shall be entitled only to
the following compensation and benefits upon such termination:

                           (a)      Termination by Reason of Death or Total
Disability.  In the event that the Employee's employment is terminated prior to
the expiration of the Term by reason of the Employee's death or Total
Disability, pursuant to Paragraph 6(a) or 6(b) hereof, respectively,

                                     - 4 -
<PAGE>   5
the Employee (or the Employee's spouse or estate, as the case may be) shall be
entitled to the following amounts or benefits:

         i.       any accrued but unpaid Base Salary (as determined pursuant to
                  Paragraph 3(a) hereof) for services rendered to the date of
                  termination in accordance with the Company's standard payroll
                  practices and any unpaid Bonus previously awarded by the Board
                  pursuant to Paragraph 3(b) hereof;

         ii.      any incurred but unreimbursed expenses required to be
                  reimbursed pursuant to Paragraph 5(a) hereof;

         iii.     the benefits to which the Employee and/or the Employee's
                  family may be entitled upon such termination pursuant to the
                  plans, programs and arrangements referred to in Paragraph 5
                  hereof shall be determined and paid in accordance with the
                  terms of such plans, programs and arrangements; and

         iv.      the Option, to the extent it was exercisable at the time of
                  the Employee's Termination, shall remain exercisable (by the
                  Employee or by the duly authorized executor of the Employee's
                  last will or the duly authorized administrator of the
                  Employee's estate, as the case may be) for a period commencing
                  at the time of the Employee's Termination and ending on the
                  earlier of (i) one hundred eighty (180) days after the time of
                  the Employee's Termination, or (ii) the tenth anniversary of
                  the date of grant of the Option.

                           (b)      Termination by the Company Without Cause or
Termination by the Employee With Good Reason. In the event that the Employee's
employment is terminated by the Company without Cause pursuant to Paragraph 6(c)
hereof, or by the Employee with Good Reason pursuant to Paragraph 6(d) hereof,
the Employee shall be entitled to the following amounts or benefits:

         i.       any accrued but unpaid Base Salary (as determined pursuant to
                  Paragraph 3(a) hereof) for services rendered to the date of
                  termination in accordance with the Company's standard payroll
                  practices and any unpaid Bonus previously awarded by the Board
                  pursuant to Paragraph 3(b) hereof;

         ii.      any incurred but un reimbursed expenses required to be
                  reimbursed pursuant to Paragraph 5(a) hereof;

         iii.     continued payment of the Base Salary (as determined under
                  Paragraph 3(a) hereof) in accordance with the Company's
                  standard payroll practices until the later of: (x) the time
                  the Term would have ended but for the Employee's termination
                  by the Company without Cause or by the Employee with Good
                  Reason, or (y) six (6) months from such termination;

         iv.      the benefits to which the Employee and/or the Employee's
                  family may be entitled upon such termination pursuant to the
                  plans, programs and arrangements referred to in Paragraph 5
                  hereof shall be determined and paid in accordance with the
                  terms of such plans, programs and arrangements;

                                      - 5 -
<PAGE>   6
         v.       if the Employee (or his legal representative) timely elects to
                  continue the Employee's medical benefits under the
                  Consolidated Omnibus Benefit Restoration Act ("COBRA"), the
                  Company will, for a maximum of six (6) months, pay to the
                  medical insurance carrier the monthly premiums for such
                  continuation coverage; and

         vi.      the First Class Option, to the extent it would have become
                  exercisable in accordance with the vesting schedule set forth
                  in Paragraph 4(a)(i) hereof within the 12 months immediately
                  following the time of the Employee's Termination but for the
                  Employee's termination by the Company without Cause or by the
                  Employee with Good Reason, will be deemed to have vested and
                  become fully exercisable at the time of the Employee's
                  Termination.

                           (c)      Termination by the Company for Cause or
Termination by the Employee Without Good Reason. In the event that the
Employee's employment is terminated prior to the expiration of the Term of this
Agreement by the Company for Cause pursuant to Paragraph 6(c) hereof or by the
Employee without Good Reason pursuant to Paragraph 6(d) hereof, the Employee
shall be entitled to the following amounts or benefits

         i.       any accrued but unpaid Base Salary (as determined pursuant to
                  Paragraph 3(a) hereof) for services rendered to the date of
                  termination in accordance with the Company's standard payroll
                  practices and any unpaid Bonus previously awarded by the Board
                  pursuant to Paragraph 3(b) hereof;

         ii.      any incurred but unreimbursed expenses required to be
                  reimbursed pursuant to Paragraph 5(a) hereof;

         iii.     the benefits to which the Employee and/or the Employee's
                  family may be entitled upon such termination pursuant to the
                  plans, programs and arrangements referred to in Paragraph 5
                  hereof shall be determined and paid in accordance with the
                  terms of such plans, programs and arrangements; and

         iv.      the Option shall expire immediately upon the Employee's
                  Termination and be of no force or effect.  If, subsequent to
                  the Employee's Termination for any reason it is discovered
                  that the Employee's employment could have been terminated for
                  Cause, the Employee's employment shall be deemed to have been
                  terminated for Cause as of date of the occurrence of the event
                  giving rise to Cause.  In the event the Employee has been
                  permitted to exercise the Option on or after the date the
                  Employee's employment is deemed to have been terminated for
                  Cause, such exercise shall be deemed to have been void ab
                  initio and, upon demand by the Company, the Employee shall
                  return to the Company any shares purchased upon such exercise,
                  and the Company shall return to the Employee the exercise
                  price paid by the Employee.

                           (d)      Termination Upon a Change of Control.  In
the event there is a "Change of Control" (as defined by the Plan) and the
Employee's employment is terminated thereafter by the Company without Cause or
by the Employee with Good Reason, the First Class

                                     - 6 -
<PAGE>   7
Option, to the extent it was not exercisable at the time of the Employee's
Termination pursuant to this Paragraph 7(d), shall vest and become fully
exercisable at the time of the Employee's Termination.

                           (e)      Expiration of The Agreement and Failure To
Renew. In the event that this Agreement expires after December 31, 2001 and the
Company has not made an offer to renew this Agreement with job duties and base
salary substantially similar to or more favorable to the Employee than those
described herein, the First Class Option, to the extent it was not exercisable
on December 31, 2001 but would have become exercisable on or before December 31,
2002 in accordance with the vesting schedule set forth in Paragraph 4(a)(i) but
for the expiration of this Agreement, will be deemed to have vested and will
become fully exercisable on December 31, 2001.

                           (f)      No Other Benefits or Compensation.  Except
as may be specifically provided under this Agreement or under the terms of any
incentive compensation, employee benefit or fringe benefit plan applicable to
the Employee at the time of the termination of the Employee's employment prior
to the end of the Term, the Employee shall have no right to receive any other
compensation, or to participate in any other plan, arrangement or benefit, with
respect to any future period after such termination.

                  8.       Confidentiality, Ownership, and Covenants of
Non-Competition and Non-Solicitation.

                           (a)      Confidentiality.  The Employee recognizes
that the Company's business interests require the fullest practical protection
and confidential treatment of all information not generally known within the
relevant trade group or by the public, including all documents, writings,
memoranda, business plans, illustrations, designs, plans, processes, programs,
inventions, computer software, reports, sources of supply, customer lists,
supplier lists, trade secrets and all other valuable or unique information and
techniques acquired, developed or used by the Company relating to its
businesses, operations, employees and customers (hereinafter collectively termed
"Protected Information"). The Employee expressly acknowledges and agrees that
Protected Information constitutes trade secrets and confidential and proprietary
business information of the Company. No Protected Information shall include
information which is or becomes part of the public domain through no breach of
this Agreement by the Employee. The Employee agrees that Protected Information
is essential to the success of the Company's business, and it is the policy of
the Company to maintain as secret and confidential Protected Information which
gives the Company a competitive advantage over those who do not know the
Protected Information and is expressly and implicitly protected by the Company
from unauthorized disclosure. Accordingly, the Employee agrees to keep secret
Protected Information and to treat confidentially and not to knowingly permit
any other entity to, directly or indirectly, appropriate, divulge, disclose or
otherwise disseminate to any other entity nor use in any manner for the
Employee, and not to intentionally use or aid others in using any such Protected
Information in competition with the Company or its Affiliates except to the
extent that disclosure is required by law; provided, however, that the Employee
shall provide the Company with notice as far in advance of any required
disclosure as is practicable in order for the Company to obtain an order for the
assurance that any information required to be disclosed will be treated as
Protected Information and the Employee shall use all reasonable efforts to

                                     - 7 -
<PAGE>   8
cooperate with the Company in connection therewith and in furtherance thereof.
The obligation of non-disclosure of information shall continue to exists for so
long as such information remains Protected Information. For purposes of this
Agreement, trade secrets are subject to the protection of the Illinois Trade
Secret Act. The provisions of this Paragraph 8(a) are not intended to supersede
or limit the effect of any prior confidentiality or proprietary rights
agreements previously executed by the Employee including the Confidential
Information, Proprietary Rights and Non-Competition Agreement between the
Company and the Employee, a copy of which is attached hereto as Exhibit B.
However, if there is any conflict between the terms and conditions of this
Agreement and the Confidential Information, Proprietary Rights and
Non-Competition Agreement attached hereto as Exhibit B, then the terms and
conditions of this Agreement, as interpreted by the Board, shall govern.

                           (b)      Ownership. The Employee hereby assigns to
the Company all of the Employee's 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 the Employee, either alone or jointly with others, during the course
of the performance of services for the Company. The Employee shall also assign
to, or as directed by, the Company, all of the Employee's 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. For the purpose of this
Agreement, the term "Inventions" collectively refers to any and all inventions,
trade secrets, improvements, 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. The provisions of this Paragraph 8(b) are not intended to supersede
or limit the effect of any prior confidentiality or proprietary rights
agreements previously executed by the Employee including the Confidential
Information, Proprietary Rights and Non-Competition Agreement between the
Company and the Employee, a copy of which is attached hereto as Exhibit B.
However, if there is any conflict between the terms and conditions of this
Agreement and the Confidential Information, Proprietary Rights and
Non-Competition Agreement attached hereto as Exhibit B, then the terms and
conditions of this Agreement, as interpreted by the Board, shall govern.

                           (c)      Covenants of Non-Competition and
Non-Solicitation. The Employee acknowledges that the Employee's services
pursuant to this Agreement are unique and extraordinary, that the Company will
be dependent upon the Employee for the development and growth of its business
and related functions, and that the Employee 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. The
Employee 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, the Employee covenants and agrees that at no
time during the Term nor during the period commencing on the date of termination
of the Employee's employment with the Company and ending the day following the
second anniversary of the date of termination of the Employee's employment with
the Company for any reason, shall the Employee either alone or as a stockholder,
partner, consultant, owner, agent, creditor, co-venturer of any other entity or
in any other capacity, directly or indirectly, engage in the Business; provided
that nothing herein shall

                                     - 8 -
<PAGE>   9
prohibit the Employee from being an owner of not more than 5% of the outstanding
stock of any class of a corporation which is publicly traded, so long as the
Employee does not actively participate in the business of such corporation. For
the purpose of this Paragraph 8(c), the "Business" means the business of
developing, manufacturing and marketing high temperature superconductivity
products designed to enhance the quality, capacity, coverage and flexibility of
cellular, personal communication services and other wireless telecommunications
services.

                  For the reasons acknowledged by the Employee at the beginning
of this Paragraph 8(c), the Employee additionally acknowledges, covenants, and
agrees that at no time during the Term nor during the period commencing on the
date of termination of the Employee's employment with the Company and ending the
day following the second anniversary of the date of termination of the
Employee's employment with the Company for any reason, shall the Employee,
directly or indirectly, either alone or as a stockholder, partner, consultant,
adviser, owner, agent, creditor, co-venturer of any other entity, or in any
other capacity, (i) knowingly sell to or solicit sales of products produced in
the Business to any customer or account which was a customer or account of the
Company during the Employee's employment with the Company, or (ii) (other than
through general, non targeted advertisements) intentionally solicit, hire,
knowingly attempt to solicit or hire, or knowingly participate in any attempt to
solicit or hire any person who was an employee of the Company or any of its
Affiliates during the Employee's employment with the Company.

                  The provisions of this Paragraph 8(c) are not intended to
supersede or limit the effect of any prior confidentiality or proprietary rights
agreements previously executed by the Employee including the Confidential
Information, Proprietary Rights and Non-Competition Agreement between the
Company and the Employee, a copy of which is attached hereto as Exhibit B.
However, if there is any conflict between the terms and conditions of this
Agreement and the Confidential Information, Proprietary Rights and
Non-Competition Agreement attached hereto as Exhibit B, then the terms and
conditions of this Agreement, as interpreted by the Board, shall govern.

                  (d) Equitable Remedies. The Employee acknowledges, covenants
and agrees that, in the event the Employee shall violate any provisions of this
Section 8, the Company will have the right to enforce this Agreement by all
remedies that may be available at law or in equity.

                  9. Assignability; Binding Effect. This Agreement is a personal
contract calling for the provision of unique services by the Employee, and the
Employee's rights and obligations hereunder may not be sold, transferred,
assigned or pledged. In the event of any attempted assignment or transfer of
rights hereunder by the Employee contrary to the provisions hereof (other than
as may be required by law), the Company will have no further liability for
payments hereunder. The rights and obligations of the Company hereunder will be
binding upon and run in favor of the successors and assigns of the Company and,
in connection therewith, and notwithstanding any other provision of this
Agreement to the contrary, in the event that there is such a successor or
assign, on and after the date of such succession or assignment, "Company" shall
thereupon instead refer to such successor or assign, as the case may be. This
Agreement does not create, and shall not be interpreted or construed to create,
any rights enforceable by any person not a party to this Agreement, except as
specifically provided herein.

                                     - 9 -
<PAGE>   10
                  10. Entire Agreement. This Agreement represents the entire
agreement between the parties concerning the Employee's employment with the
Company and supersedes all prior negotiations, discussions, understandings and
agreements, whether written or oral, between the Employee and the Company
relating to the subject matter of this Agreement. All prior employment
agreements, between the Company and the Employee 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 the Employee and by a duly authorized officer of the
Company other that the Employee. No waiver by any party to this Agreement of any
breach by another party 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 the Employee        Mr. Richard Herring
                                    740 South Pierce Avenue, Suite 1
                                    Louisville, CO 80027

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

          with a copy to:           Kevin B. Leblang
                                    Kramer Levin Naftalis & Frankel LLP
                                    919 Third Avenue
                                    New York, NY 10022

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.

                                     - 10 -
<PAGE>   11
                  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 the Employee 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 the Employee under this Agreement shall
be subject to all applicable payroll and withholding taxes and deductions
required by any law, rule or regulation of any federal, state or local
authority.

                  17. Applicable Law/ Jurisdiction. The laws of the State of
Illinois shall govern the interpretation, validity and performance of the terms
of this Agreement, without reference to rules relating to conflicts of law. The
parties select and irrevocably submit to the exclusive jurisdiction of a court
of competent jurisdiction located in the State of Illinois for any action to
enforce, construe or interpret this Agreement. The Employee and the Company each
hereby waives any objection to venue in such state on the basis of forum
non-conveniens.

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

                       ILLINOIS SUPERCONDUCTOR CORPORATION

                                            By: /s/ GEORGE CALHOUN
                                                ----------------------------
                                                    GEORGE CALHOUN
                                                    Chief Executive Officer

                                                /s/ RICHARD HERRING
                                                ----------------------------
                                                    RICHARD HERRING

                                     - 11 -

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