<PAGE>   1

                                                                  EXHIBIT 10(7)

                    Severance Agreement of Richard D. Hamill

                               SEVERANCE AGREEMENT

         THIS SEVERANCE AGREEMENT ("Agreement") is made by and between HYCOR
BIOMEDICAL INC., Delaware corporation ("Company"), and RICHARD D. HAMILL, PH.D.
("Executive") (together, the "Parties;" each, a "Party").

                              W I T N E S S E T H:

         WHEREAS, the Parties have entered into an Employment Agreement dated as
of June 20, 1997 (the "Employment Agreement") whereby Executive holds the
offices of President and Chief Executive Officer of the Company; and

         WHEREAS, the Parties wish to terminate their several relationships;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the Parties, intending to be legally bound,
covenant and agree as follows:

1.       VOLUNTARY TERMINATION OF EMPLOYMENT. Executive's employment with the
         Company terminated voluntarily as of the close of business on July 17,
         1998 (the "Termination Date"), at which time Executive resigned as an
         employee and officer of the Company. Executive will no longer serve in
         the capacities of President or Chief Executive Officer of the Company.
         Concurrently with his resignation of employment, Executive resigned
         from all directorships held with the Company and its subsidiaries.
         Should any employer or prospective employer inquire of the Company
         Executive's reason for leaving the employment of the Company "voluntary
         resignation" will be given as the reason.

2.       BENEFITS TO EXECUTIVE. In exchange for his resignation of his positions
         as an employee, officer, and director of the Company, and
         notwithstanding any provisions to the contrary in the Employment
         Agreement, the Company will provide Executive with the following
         benefits:

         a.       Notwithstanding his voluntary resignation from the Company,
                  Executive shall be provided with an amount equal to the salary
                  payments specified in Section 4(D) of the Employment
                  Agreement, namely twenty (20) months' salary at the rate of
                  $250,000 per annum, totaling $416,667, paid on the Company's
                  normal payroll dates, subject to applicable withholding;
                  provided that, on or after January 1, 1999, the Company at its
                  sole discretion shall have the option of paying any and all
                  remaining amounts due to him under this subparagraph a. in one
                  lump sum payment rather that in installments.

         b.       Executive shall be entitled to reimbursements for all
                  reasonable business expenses incurred prior to the Termination
                  Date.

<PAGE>   2

         c.       Executive shall be entitled to convert the Company's
                  membership in the Center Club to an individual membership in
                  his name, and shall be solely responsible for any and all fees
                  and costs imposed by the Center Club for such transfer.

         d.       Executive shall be allowed to retain the concert ticket series
                  at the Orange County Performing Arts Center that were
                  purchased in his name by the Company.

         e.       Pursuant to Paragraphs 4, 5, and 6 below, the Executive will
                  be allowed to repay his debt obligations to the Company by the
                  use of the insurance premiums for life and disability
                  insurance that otherwise would have been paid on his behalf
                  under the terms of Section 4(D) of the Employment Agreement.

3.       MEDICAL BENEFITS. The Company will continue to provide health benefits
         to Executive for an additional twenty (20) months following the
         Termination Date, and will continue to pay for Executive's COBRA
         premiums during that time.

4.       LIFE INSURANCE. As of the Termination Date, the Company will transfer
         to Executive ownership of all life insurance policies held in
         Executive's name. Benefits under such policies may be continued at
         Executive's expense.

5.       DISABILITY SUPPLEMENT. As of the Termination Date, the Company will
         transfer to Executive ownership of all disability insurance policies
         held in Executive's name. Benefits under such policies may be continued
         at Executive's expense.

6.       DEBT SETTLEMENT. Executive releases the Company from its obligation to
         pay $23,968.90, the cost of the premiums for the policies described in
         Paragraphs 4 and 5, which company was otherwise obliged to pay, in
         return for the cancellation of an equal principal amount of executive's
         debt to the Company. The balance of this debt, $26,031.08, will be
         deducted from the severance payments due pursuant to Paragraph 2, in
         installments of $591.62 each payroll period.

7.       ENTIRE OBLIGATION. The amounts paid to Executive by the Company
         pursuant to Paragraphs 2 and 3 above represent the entire obligation of
         the Company to Executive under this Agreement and the Employment
         Agreement, and any amendments or supplements thereto, and Executive has
         no entitlement under this Agreement and the Employment Agreement, or
         any amendments or supplements thereto, to additional compensation from
         the Company.

8.       VOLUNTARINESS OF AGREEMENT. Executive acknowledge and agrees that he is
         entering into this Agreement voluntarily, and with a full understanding
         of its terms, for the purpose of being allowed voluntarily to resign
         his positions as director, officer, and employee of the Company and in
         consideration for the other benefits provided to him under Paragraph 2
         above. Executive further acknowledges that such benefits are adequate
         and sufficient consideration for the promises and representations made
         by him in this Agreement.

9.       WAIVER OF RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT.
         Executive represents and agrees that this Agreement includes a waiver
         of any and all rights executive has or may have under the Age
         Discrimination in Employment Act. Executive is hereby advised (a) to
         consult with an attorney prior to signing this Agreement and (b) that
         he has 21 days 

<PAGE>   3

         in which to consider and accept this Agreement by signing and returning
         this Agreement to the Company c/o Reginald P. Jones. In addition,
         Executive has a period of seven (7) days following his execution of
         this Agreement in which he may revoke this Agreement. If Executive does
         not advise the Company (by a writing received by Reginald P. Jones
         within such seven (7) day period) of his intent to revoke the
         Agreement, the Agreement will become effective and enforceable. If
         Executive revokes the Agreement, then no amounts will be paid to him
         under Paragraph 2 above, or otherwise.

10.      MUTUAL RELEASE. The Parties acknowledge and agree that, as a condition
         of this settlement, each of the Parties expressly releases all rights
         and claims that such parties know about as well as those such parties
         may not know about. Each of the Parties expressly waives all rights
         under Section 1542 of the Civil Code of the State of California, which
         reads as follows:

                 "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
                 DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
                 EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
                 MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."

         Notwithstanding the provisions of Section 1542, and for the purpose of
         implementing a full and complete release and discharge of each and all
         of the Releasees, each of the Parties expressly acknowledges that this
         Agreement is intended to include and does include in its effect,
         without limitation, all Claims which such parties do not know or
         suspect to exist in such party's favor at the time of execution of this
         Agreement and that this settlement expressly contemplates the
         extinguishment of all such Claims.

         In connection with the above waiver, each Party represents and warrants
         that such Party has not assigned or transferred, and will not assign or
         transfer, any Claim or any interest in any Claim which such Party may
         have against the other Party to this Agreement or any of its
         representatives.

         Nothing in this Agreement shall waive Executive's rights, if any, to
         indemnification from the Company under the California Corporations
         and/or Labor Codes in the event that any legal proceedings are brought
         against Executive arising out of his employment with or service as a
         director of the Company.

11.      ARBITRATION. The Parties hereto agree that any dispute between the
         Parties regarding the formation, interpretation, effect, enforceability
         or alleged breach of this Agreement, or regarding any other dispute
         arising out Executive's employment with the Company, shall be submitted
         to final and binding arbitration in lieu of litigation. Notwithstanding
         the foregoing, the Parties specifically agree that either of them may
         seek injunctive relief in order to enforce the confidentiality,
         nonsolicitation, and other obligations set forth in the Employment
         Agreement, provided, however, that the underlying claims or disputes
         shall be resolved through arbitration. Either Party may initiate
         arbitration proceedings by written notice to the other Party. Any such
         arbitration proceedings shall be subject to the employment disputes
         arbitration rules of the American Arbitration and shall be held in

<PAGE>   4

         Orange County before a single arbitrator selected by the Parties from
         the American Arbitration Association employment disputes panel, unless
         the Parties agree otherwise in writing. The arbitrator shall apply the
         substantive laws of the State of California (excluding choice-of-law
         principles that might call for the application of some other state's
         law). The arbitrator will not have the power to add to or ignore any of
         the terms and conditions of this Agreement or the Employment Agreement,
         and his or her decision shall not go beyond what is necessary for the
         interpretation and application of this Agreement and obligations of the
         Parties under this Agreement. If any claim or dispute is submitted to
         arbitration in accordance with this Section, the Parties agree that the
         arbitrator's decision shall be final and legally binding on both
         Parties. The prevailing party, as determined by the arbitrator, shall
         be entitled to its reasonable attorneys' fees and costs. The
         arbitration provisions of this Section shall be governed by the
         provisions of the Federal Arbitration Act.

12.      CHOICE OF LAW. This Agreement will be interpreted in accordance with
         the laws of the State of California.

13.      ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
         the Parties with respect to the termination of Executive's employment
         with the Company, and supersedes any earlier written, oral or implied
         understandings or agreements between the Parties. Except as modified by
         this Agreement, the Employment Agreement remains in effect.

14.      AMENDMENT. This Agreement shall not be released, discharged or modified
         in any manner whatsoever, except by an instrument signed by the parties
         hereto.

15.      SEVERABILITY. The provisions of this Agreement are severable, and if
         any provision is ever found to be unenforceable, all other provisions
         shall remain fully valid and enforceable.

16.      NOTICE. All notices or other communications required or permitted
         hereunder shall be given in writing and shall be delivered or sent as
         follows by registered or certified mail, postage prepaid or by
         facsimile with confirmation of successful transmission:

         If to Executive:  Richard D. Hamill, Ph.D.
                           22686 Ledana
                           Mission Viejo, CA  92691

         with a copy to:   Robert Gerard, Esq.
                           Pillsbury Madison & Sutro LLP
                           650 Town Center Drive, Seventh Floor
                           Costa Mesa, CA 92626-7122

         If to Company:    Hycor Biomedical Inc.
                           Attention: Reginald P. Jones
                           7272 Chapman Avenue
                           Garden Grove, CA  92841

<PAGE>   5


         With a copy to:   Paul, Hastings, Janofsky & Walker LLP
                           Attention:  Peter J. Tennyson, Esq.
                           695 Town Center Drive, 17th Floor
                           Costa Mesa, CA  92626-1926

         Any party may change its address for purposes of notice by giving
         notice in accordance with the provisions of this Section 16. Any such
         notice will be deemed to be given when received, if personally
         delivered or sent by telecopy, and, if mailed, five days after deposit
         in the United States mail, properly addressed, with proper postage
         affixed or by facsimile with confirmation of successful transmission.

17.      COUNTERPARTS; WAIVER. This Agreement may be executed in counterparts,
         all of which taken together will constitute one instrument. The failure
         of any party to insist upon strict performance of any of the terms or
         conditions of this Agreement will not constitute a waiver of any of its
         rights hereunder.

                            [Signature Page Follows]

<PAGE>   6

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

                                            "Company"

                                            HYCOR BIOMEDICAL INC.,
                                            a Delaware corporation


                                            By:  /s/ Reg Jones          10/20/98
                                            ------------------------------------
                                            Its:    Senior Vice President


                                            "Executive"


                                            /s/ Richard D Hamill        10/19/98
                                            ------------------------------------
                                            Richard D. Hamill, Ph.D