<PAGE>
 
                                                                   EXHIBIT 10.17
                                                                   -------------


                              SEVERANCE AGREEMENT
                              -------------------


          THIS SEVERANCE AGREEMENT (this "Agreement") is entered into this 11th
day of March, 1998, effective as of January 1, 1998 by and between MARQUETTE
MEDICAL SYSTEMS, INC., a Wisconsin corporation (the "Company"), and TIMOTHY C.
MICKELSON, an individual residing at 4414 River Willow Court, Mequon, Wisconsin
53092 ("Mickelson"); and

          WHEREAS, Mickelson has been a Director and executive officer of the
Company and by virtue of such position has extensive knowledge, contacts and
experience relating to the Company's product line, marketing plans and
strategies, customer base and financial affairs; and

          WHEREAS, Mickelson has ended his employment with the Company effective
December 31, 1997 and has submitted his resignation from all offices in the
Company and as a Director thereof and the Company wishes to induce Mickelson to
refrain from competing or aiding others in competing with the Company during
1998;

          NOW, THEREFORE, in consideration of these premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:

15.       In consideration of Mickelson's covenants hereinafter contained, the
     Company agrees to pay to Mickelson, severance payments in the amount of
     Twenty-Two Thousand Nine Hundred Seventeen ($22,917.00) Dollars per month
     payable no less often than monthly during the one-year period ending
     December 31, 1998 (the "Payment Period") while this Agreement remains in
     effect.

16.       Notwithstanding the foregoing, the severance payments otherwise
     payable under Section 1 shall be reduced by the amount of any compensation
     earned or received by Mickelson as an officer or employee of any other
     company during the Payment Period. Mickelson agrees to notify the Company
     of all such amounts earned or received during the Payment Period and, at
     the request of the Company, to provide the Company with a copy of his
     Federal and state income tax returns for 1998, within thirty (30) days
     after they are filed.

17.       Mickelson agrees that if, during the Payment Period, he becomes
     employed by or associated as an employee, partner, consultant, investor,
     member or agent or officer or director with any of the following companies,
     the Company's obligation to continue to make payments hereunder shall
     immediately terminate and, to the extent any payments are thereafter made,
     the Company shall have the right to recover any such payments made
     following such affiliation, to-wit:

          Hewlett Packard                     Datex              
          Space Labs                          Siemens             
          Nihon Cohden                        Fukuda
                                              Protocol
<PAGE>
 
          Quinton Instruments                 Physio Control   
                                                    
18.       In addition to the amounts payable pursuant to Section 1, the Company
     agrees to pay to Mickelson, within 20 days following the execution of this
     Agreement, the sum of Fifty-One Thousand Six Hundred Forty-Five ($51,645)
     Dollars, less applicable withholding, representing Mickelson's pro rated
     incentive bonus for the year ending April 30, 1998.

19.       Mickelson's rights to exercise his stock options under Option
     Agreement Nos. 82, 88, 89, 117 and 184, to and only to the extent vested as
     of December 31, 1997, anything therein contained to the contrary
     notwithstanding, may be exercised by Mickelson (or in the event of
     Mickelson's death, by Mickelson's successor in interest) on or before
     January 1, 2000.

20.       The Company agrees to maintain Mickelson's insurance coverage under
     its health and dental insurance plan through December 31, 1998, at no cost
     to Mickelson, and to permit Mickelson to exercise his COBRA rights as of
     that date.

21.       The Company agrees to reimburse Mickelson for out-placement services
     incurred by Mickelson during 1998, to a maximum of $23,000.

22.       Mickelson shall have the right to exercise his conversion rights under
     his group term life insurance policy in accordance with the terms of that
     policy.

23.       Mickelson hereby confirms his prior resignation from all offices and
     directorships held by him in the Company.

24.       Except for Mickelson's claims hereunder and his rights to accrued
     benefits under the Company's Profit Sharing-401(k) Plan or Deferred
     Compensation Plan, Mickelson releases and forever discharges the Company
     from and against any and all claims that he now has against the Company by
     reason of any cause, matter, thing, occurrence or event whatsoever prior to
     the effective date of this Agreement. Mickelson specifically agrees that
     any claims of discrimination on the basis of age pursuant to the Age
     Discrimination Act of 1967, as amended, which he shall or may have against
     the Company or connected in any way with his employment with the Company,
     are hereby waived. Mickelson acknowledges that he has been advised to
     consult with legal counsel before signing this Agreement and has done so or
     has had the opportunity to do so and has had twenty-one (21) days from the
     date of this Agreement within which to consider it. Mickelson may, within
     seven (7) calendar days following the date of execution of this Agreement,
     cancel and terminate this Agreement by giving written notice of
     cancellation and termination to the Company and by returning any payments
     that have been made to him pursuant to the provisions of Sections 1 or 4
     since the date of execution of this Agreement.

25.       All notices hereunder shall be given in writing by hand delivery or by
     registered or certified mail, return receipt requested, postage prepaid,
     addressed to the parties at the following respective addresses, or at such
     other address as may from time to time be designated by either party to the
     other hereunder in accordance with this Section 11:

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<PAGE>
 
          To Mickelson:

               Timothy C. Mickelson
               4414 River Willow Court
               Mequon, Wisconsin 53092

          To the Company:

               Marquette Medical Systems, Inc.
               8200 Tower Avenue
               Milwaukee, Wisconsin 53203

               Attention: Chairman of the Board

               All such notices and communications hereunder shall be effective
and deemed given, if mailed, on and as of the date of receipt, as evidenced by
the acknowledgment of receipt issued with respect thereto by the applicable
postal authorities and, if delivered by hand, on and as of the date of receipt,
as evidenced by the signed acknowledgment of receipt of the person to whom such
notice or communication shall have been addressed, as applicable.

26.       In case any one or more of the provisions of this Agreement should be
     invalid, illegal or unenforceable in any respect, the validity, legality
     and enforceability of the remaining provisions contained herein shall not
     in any way be affected or impaired thereby.

27.       The parties hereby agree that this Agreement, and the respective
     rights, duties and obligations of the parties hereunder, shall be governed
     by and construed in accordance with the laws of the State of Wisconsin,
     without giving effect to principles of conflict of law thereunder.

28.       This Agreement shall not be assignable, in whole or in part, by either
     party without the prior written consent of the other party and any
     attempted assignment without such prior written consent shall be void.

29.       This Agreement may not be amended, terminated or superseded except by
     an agreement in writing between the Company and Mickelson.

30.       This Agreement and the provisions thereof shall be binding upon and
     inure to the benefit of, in the case of Mickelson, his heirs,
     beneficiaries, personal representatives, executors, successors and
     permitted assigns, and, in the case of the Company, its respective
     successors and permitted assigns.

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<PAGE>
 
31.       This Agreement may be executed in any number of duplicate
     counterparts, each of which shall be deemed an original hereof but all of
     which together shall constitute one and the same document.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.


                              MARQUETTE MEDICAL SYSTEMS, INC.


               BY:____________________________
                    CHAIRMAN OF THE BOARD

 
                  ____________________________
                      TIMOTHY C. MICKELSON

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