<PAGE>   1
                                                                  Exhibit 10.38


                              SETTLEMENT AGREEMENT

This Settlement Agreement is effective as of March 20, 1996, and is made and
entered into by and between: Molecular Dynamics, Inc. (hereinafter referred to
as "MOLECULAR"), a California corporation, which has offices at 928 East Arques
Avenue, Sunnyvale, California 94086; and Meridian Instruments, Inc.,
(hereinafter referred to as "MERIDIAN"), a Michigan corporation, which has
offices at 2310 Science Parkway, Okemos, Michigan 48864.

WHEREAS, litigation is currently pending in the United States District Court for
the Northern District of California, Molecular Dynamics, Inc. v. Meridian
Instruments, Inc., Civil Action No. C 94-4292 SAW (JSB) ENE (hereinafter
referred to as "District Court Action") initiated by MOLECULAR, alleging that
MERIDIAN is infringing U.S. Patent Re. 34,214 (sometimes hereinafter referred to
as "the '214 patent");

WHEREAS, MERIDIAN has asserted a counterclaim ("MERIDIAN's Counterclaim") in the
District Court Action for declaratory relief alleging that U.S. Patent Re.
34,214 is invalid, not infringed, and unenforceable;

WHEREAS, MOLECULAR represents that it is the owner of all right, title, and
interest in and to U.S. Patent Re. 34,214 and its related foreign patents and
patent applications;

WHEREAS, MOLECULAR and MERIDIAN wish to resolve all claims relating to U.S.
Patent Re. 34,214 and its related foreign patents and patent applications,
including all claims and counterclaims asserted in the District Court Action and
any claims which MOLECULAR may have against any customer of MERIDIAN;

NOW, THEREFORE, the parties to this Settlement Agreement, in reliance upon the
above-recited representations and in consideration of the terms and covenants
set forth below, agree as follows:

1.       Mutual Releases

         a.       MOLECULAR hereby grants to MERIDIAN and its successors,
                  assigns, agents, distributors, and anyone acting for or on
                  behalf of MERIDIAN and to all of MERIDIAN's customers and
                  their agents, employees, representatives, and assigns, a
                  release from all liability owing to MOLECULAR as a result of
                  MOLECULAR's claims asserted in the District Court Action.

         b.       MERIDIAN hereby grants to MOLECULAR and its successors,
                  assigns, and those acting for or on behalf of MOLECULAR, a
                  release from all liability owing to MERIDIAN as a result of
                  MERIDIAN's Counterclaim asserted in the District Court Action.
<PAGE>   2
2.       Dismissal of District Court Action

The parties hereby agree and stipulate that the District Court Action will be
dismissed with prejudice pursuant to a Stipulation and Order of Dismissal with
Prejudice in the form shown in Exhibit A hereto to be executed by their
respective counsel of record which will be submitted to the Court for entry but
will be effective upon execution by all counsel for the parties hereto.

3.       License Grant

         a.       MOLECULAR hereby grants to MERIDIAN and its Affiliates a
                  non-exclusive transferable worldwide license under U.S. Patent
                  Re. 34,214 and all related foreign patents and patent
                  applications, and any divisions, continuations, reissues or
                  extensions thereof (collectively, the "Patents"), subject to
                  the terms and conditions of this Agreement. The term
                  "Affiliates" shall mean companies the majority of whose voting
                  shares are now or hereafter owned or controlled directly or
                  indirectly by MERIDIAN. A company shall be considered an
                  Affiliate for only so long as such ownership or control
                  exists.

         b.       Without limitation of the foregoing, such license shall
                  entitle MERIDIAN and its Affiliates to make, have made,
                  import, use, offer to sell, and sell any products, components
                  or subassemblies and to practice any methods or processes
                  within the claims of the Patents. No rights or licenses are
                  granted or deemed granted hereunder or in connection herewith,
                  other than those rights and licenses expressly granted in this
                  Agreement, and MOLECULAR has no obligation to provide MERIDIAN
                  with any information or know-how.

4.       Grant of Stock

         a.       In consideration, MERIDIAN will issue to MOLECULAR XXXXXXX
                  shares of common stock of MERIDIAN Instruments, Inc.,
                  (hereinafter referred to as the "Shares"), within thirty days
                  after the effective date of this Agreement. The Shares issued
                  to MOLECULAR shall be subject to the terms and conditions set
                  forth below.

         b.       MOLECULAR represents and warrants to MERIDIAN as follows:

                  i.       Investment. MOLECULAR is acquiring the Shares for
                           investment purposes, without a view to or for resale
                           in connection with, any distribution thereof.

                  ii.      Transfers. MOLECULAR understands that since the
                           Shares have not been registered under the Securities
                           Act or applicable state securities laws, MOLECULAR
                           must bear the economic risk of an investment in such
                           securities for an indefinite period of time unless
                           they are subsequently registered under the Securities
                           Act and applicable state securities laws or an
                           exemption from such registration is available. In
                           that regard, MOLECULAR has been advised that:


           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                      -2-
<PAGE>   3
                           (1)      MERIDIAN has no obligation to register the
                                    Shares under the Securities Act or any Blue
                                    Sky Laws.

                           (2)      MERIDIAN is not subject to the reporting
                                    requirements of the Securities Exchange Act
                                    of 1934, as amended, and Rule 144 is not
                                    presently available for public release of
                                    the Shares. It acknowledges that the Shares
                                    must be held indefinitely unless they are
                                    subsequently registered under the Securities
                                    Act or an exemption from such registration
                                    is available. It has been advised or is
                                    aware of the provisions of Rule 144
                                    promulgated under the Securities Act, which
                                    permits limited resale of securities
                                    purchased in a private placement subject to
                                    the satisfaction of certain conditions.

                  iii.     Ability to Bear Risk. MOLECULAR is able to bear the
                           economic risk of an investment in the Shares,
                           including, without limiting the generality of the
                           foregoing, the risk of losing part or all of its
                           investment and the possible inability to sell or
                           transfer the Shares for an indefinite period of time.

                  iv.      Accredited Investor. MOLECULAR is an "accredited
                           investor," as that term is defined in Rule 501 of
                           Regulation D promulgated under the Securities Act.

                  v.       Restrictive Legend. MOLECULAR agrees that the
                           certificates representing the Shares will bear the
                           following restrictive legend:

                           THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
                           SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
                           THEY MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED,
                           HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
                           OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
                           SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
                           SECURITIES LAW OR UNLESS THE COMPANY HAS RECEIVED AN
                           OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
                           SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH
                           TRANSACTION.

                  vi.      Liquidity. MOLECULAR's financial condition is such
                           that the undersigned is under no present need to
                           dispose of any portion of the Shares to satisfy any
                           existing or contemplated undertaking or indebtedness.

                  vii.     Risk Factors. MOLECULAR understands that investment
                           in the Shares is speculative and involves significant
                           risks. In addition to the general economic risks
                           inherent in most businesses and the uncertainties
                           associated with anticipating and predicting business
                           behavior and results, MOLECULAR has been advised that
                           the following factors are those 


                                      -3-
<PAGE>   4
                           which, at the date of this Agreement, are considered
                           by management of MERIDIAN to represent the principal
                           significant risks applicable to an investment in the
                           Shares, although other factors may ultimately affect
                           MERIDIAN or an investment in it in a manner and to a
                           degree which cannot be foreseen:

                           (1)      XXXXXXXXX; requirement for XXXXXXXX.
                                    MERIDIAN is continuing to XXXXXXXXXXXX, and
                                    as a result, it is likely that MERIDIAN will
                                    XXXXXXXXXXXXXXXXXXXXXXXXX. When MERIDIAN
                                    seeks XXXXXXXXXX (i) there can be no
                                    assurance that such XXXXXXXXXXXX will be
                                    available or that they will be available on
                                    favorable terms, and (ii) the XXXXXXXX of
                                    MOLECULAR may be substantially XXXXX.

                           (2)      Arbitrary Sales Price. The sales price of
                                    the Shares has been arbitrarily set by
                                    MERIDIAN and bears no relation to assets,
                                    book value or other established criteria of
                                    value.

                           (3)      No Operating Control. MOLECULAR will not be
                                    able to control operations or remove,
                                    replace or direct management in the
                                    activities of MERIDIAN.

                  viii.    Sophistication. By reason of MOLECULAR's knowledge
                           and experience in financial and business matters in
                           general, the industry of which MERIDIAN is a part,
                           and investments of this type in particular, MOLECULAR
                           is capable of evaluating the merits and risks of any
                           investment in the Shares.

5.       Stock Put

         a.       If any of the following conditions occurs prior to July 31,
                  1999, MOLECULAR shall have the right to require MERIDIAN to
                  purchase the Shares upon the terms and provisions hereinafter
                  set forth (which right of MOLECULAR is hereinafter referred to
                  as the "Put"), subject to the provisions of Paragraph 6(b) 
                  hereof:

                  i.       MOLECULAR enters into XXXXXXXXXXXXX under U.S. Patent
                           Re. 34,214 with XXXXXXXXXX of the XXXXXXXXX defined
                           by Paragraph 5(a)(iv).

                  ii.      MOLECULAR enters into XXXXXXXXXXXXXX under U.S.
                           Patent Re. 34,214 with XXXXXXX of the XXXXXXXX
                           defined by Paragraph 5(a)(iv), and is in XXXXX
                           Xconcerning U.S. Patent Re. 34,214 with XXXXXXXX of
                           the remaining XXXXXX. MOLECULAR shall be obligated to
                           XXXXXXX such XXXXXXXXXXX (excluding a XXXXXXXXX
                           XXXXXXXXXXXXX) or until MOLECULAR shall have entered
                           into a XXXXXXX XXXXXXXXXX with such company.


           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                      -4-
<PAGE>   5
                  iii.     MOLECULAR successfully XXXXX the XXX of U.S. Patent
                           Re. 34,214 to XXXXXX (excluding a
                           XXXXXXXXXXXXXXXXXXXXXXXX) by a XXXXXXXXX against
                           XXXXXXXXXXX of the XXXXXX defined by Paragraph
                           5(a)(iv). Such condition is satisfied only if no
                           XXXXXXXXXX of U.S. Patent Re. 34,214 that is at issue
                           in such XXXXXX is found XXXXXXX XXXXXXX.

                  iv.      The XXXXXXXXXXX referred to above in Paragraphs
                           5(a)(i)-(iii) are defined as follows: Upon execution
                           of this agreement, the XXXXX are XXXXXXX
                           XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.

                           (1)      If any of the above-listed XXXXX shall
                                    XXXXXX from the XXX
                                    XXXXXXXXXXXXXXXXXXXXXXXXXXX U.S. Patent Re.
                                    34,214, then a XXXXXXXX may be made at the
                                    request of either party. Upon such request:
                                    (a) each party will propose XXXXXXXXXX; (b)
                                    each party will prioritize a combined list
                                    of such XXXXXXXXXXXX; (c) the prioritized
                                    lists will be combined to determine the
                                    highest ranking XXXXX on the combined
                                    prioritized lists and that XXXXXX shall be
                                    the XXXXX. In the case of a tie, then the
                                    XXXXXXXXXX shall be determined by lot among
                                    the tied XXXXXX.

                           (2)      As to each XXXX, any XXXXXXXXXXXXX must
                                    include at all times any XXXXXX of the named
                                    XXXX which manufactures or sells product in
                                    the United States or which ships product to
                                    the United States.

         b.       The purchase price for the Shares upon exercise of the Put
                  shall be the sum of $XXXXX, plus $XXXXXX per month starting
                  May 1, 1995.

         c.       In the event MOLECULAR shall satisfy any of the conditions set
                  forth in Paragraph 5(a) hereof prior to July 31, 1999, the
                  license granted to MERIDIAN under Paragraph 3 shall be subject
                  to the terms set forth in Paragraph 8.

         d.       If the Put is not exercised within 90 days of the fulfillment
                  of one of the conditions of Paragraph 5(a), MOLECULAR shall
                  retain the Shares but the right to exercise the Put
                  terminates.

         e.       In the event that MOLECULAR exercises the Put, MERIDIAN shall
                  pay the purchase price for the Shares purchased from MOLECULAR
                  according to the following payment schedule:

                  i.       If the Put is exercised in 1996, MERIDIAN shall pay
                           MOLECULAR XX XX of the purchase price upon the
                           exercise of the Put and shall pay the remainder of
                           the purchase price XXXXX thereafter;


           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                      -5-
<PAGE>   6
                  ii.      If the Put is exercised in 1997, MERIDIAN shall pay
                           MOLECULAR XX-XXX of the purchase price upon the
                           exercise of the Put, and shall pay the remainder of
                           the purchase price XXXXXXXXXXXXXXXX thereafter;

                  iii.     If the Put is exercised in 1998, MERIDIAN shall pay
                           MOLECULAR XXX XXXX of the purchase price upon the
                           exercise of the Put, and shall pay the remainder of
                           the purchase price XXXXXXXXXXXX thereafter;

                  iv.      If the Put is exercised in 1999, MERIDIAN shall pay
                           MOLECULAR XXX XXX of the purchase price upon the
                           exercise of the Put, and shall pay the remainder of
                           the purchase price XXXXXXXXXX thereafter.

         f.       Upon request by MERIDIAN, MOLECULAR shall subordinate
                  MERIDIAN's obligation to pay the balance of the purchase price
                  for the Shares pursuant to such Subordination Agreement as may
                  be reasonably requested by any bank or other financial
                  institution providing financing to MERIDIAN, and any other
                  secured creditor of MERIDIAN.

6.       Stock Call

         a.       MERIDIAN shall have a right to purchase, for a total price of
                  $XXX, the Shares if either of the following conditions occur:

                  i.       MOLECULAR, by XXXX, fails to XXXXXXX the XXXXXXXX
                           specified in Paragraph 5(a)(i) or to satisfy the
                           conditions specified in Paragraph 5(a)(ii); or

                  ii.      U.S. Patent Re. 34,214 is declared or otherwise found
                           XXXXXXXXX or XXXXXXXXXX in a XXXXXXXXXXX by a
                           XXXXXXXXX. Such condition is satisfied if any
                           XXXXXXXXXXXXX of U.S. Patent Re. 34,214 that is at
                           issue in XXXXXXX is found XXXXXXXXXX.

         b.       Upon any merger or consolidation of MERIDIAN, or a transfer of
                  more than 50% of the issued and outstanding common stock of
                  MERIDIAN or upon a sale of substantially all of the assets of
                  MERIDIAN, any of which transactions shall occur prior to such
                  time as MOLECULAR shall have the right to exercise the Put,
                  MERIDIAN shall have the right to purchase the Shares for a
                  purchase price equal to the purchase price which would be
                  applicable upon the exercise of the Put on such date, provided
                  however,

                  i.       the entire purchase price shall be paid by MERIDIAN
                           within thirty days of notice of exercise of such
                           purchase of the Shares unless MOLECULAR shall have
                           given the notice contemplated by Paragraph 6(b)(ii)
                           hereof, and

                  ii.      MERIDIAN shall not have such right to purchase the
                           Shares under the terms of Paragraph 6(b) hereof if
                           within fifteen days after notice by MERIDIAN to
                           MOLECULAR of the exercise of such right to purchase
                           the Shares, MOLECULAR shall notify MERIDIAN that it
                           is permanently and 

           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                      -6-
<PAGE>   7
                           irrevocably waiving any right to exercise the Put
                           pursuant to Paragraph 5 hereof, provided further,
                           that such waiver by MOLECULAR shall not affect the
                           rights and obligations of MERIDIAN and MOLECULAR
                           under Paragraph 8 of this Agreement in the event that
                           MOLECULAR shall satisfy any of the conditions set
                           forth in Paragraph 5(a) prior to July 31, 1999.

         c.       The rights of MERIDIAN set forth in each of Paragraph 6(a)
                  above and Paragraph 6(b) above are hereinafter individually,
                  and sometimes collectively, referred to as the "Call." In the
                  event of the exercise of the Call set forth in Paragraph 6(a)
                  hereof, or in the event of the exercise of the Call set forth
                  in Paragraph 6(b) hereof, if MOLECULAR does not elect to give
                  the notice contemplated by Paragraph 6(b)(ii),

                  i.       the license under U.S. Patent Re. 34,214 set forth in
                           Paragraph 3 of this Agreement shall terminate as to
                           products not made prior to written notice of
                           exercising the Call;

                  ii.      all products made prior to such written notice shall
                           have a continuing royalty-free license under U.S.
                           Patent Re. 34,214; and

                  iii.     all products, regardless of when made or sold by
                           MERIDIAN or its Affiliates, shall be licensed under a
                           continuing irrevocable royalty-free license under the
                           related foreign patents and patent applications.

7.       Other Stock Provisions

         a.       MOLECULAR shall grant to MERIDIAN's Chief Executive Officer or
                  other designee of MERIDIAN's Board of Directors an irrevocable
                  voting proxy on the Shares in the form attached hereto as
                  Exhibit B.

         b.       MOLECULAR waives any rights as a shareholder to any financial
                  statements or other reports of MERIDIAN.

         c.       The shares issued to MOLECULAR are not transferable and will
                  be subject to a legend describing the Put and Call, and all
                  other restrictions applicable to the Shares under this
                  Agreement.

8.       License Provisions

The provisions of this paragraph come into effect if and when MOLECULAR shall
satisfy any of the conditions set forth in Paragraph 5(a) hereof prior to July
31, 1999. In such event:

         a.       MERIDIAN and its Affiliates shall continue to have a
                  non-exclusive transferable worldwide license under U.S. Patent
                  Re. 34,214 and all related foreign patents and patent
                  applications as set forth in Paragraph 3 of this Agreement.

         b.       For each Insight system or component, including the confocal
                  microscope, associated optics (including lenses), computers,
                  monitors, and software relevant to 


                                      -7-
<PAGE>   8
                  the generation of 3-D confocal images, but excluding
                  accessories or peripherals unrelated to the generation of 3-D
                  confocal images ("the LICENSED PRODUCTS"), made used, shipped
                  or sold by or for MERIDIAN in, from, or to the United States
                  that is within the scope of any claim of U.S. Patent Re.
                  34,214, MERIDIAN shall pay MOLECULAR a royalty of X% of the
                  net sales price of the LICENSED PRODUCTS. The royalty of this
                  subparagraph shall have a cap of $XXXXX for the first $XXXXX
                  in annual sales of the LICENSED PRODUCTS, but the cap is
                  eliminated for the year following any year in which the annual
                  sales of the LICENSED PRODUCTS exceed $XXXXXXX.

         c.       Every ACAS, Ultima, or similar product made, used, sold,
                  imported, or offered for sale by or for MERIDIAN shall be
                  royalty-free.

         d.       Every product made and sold by or for MERIDIAN entirely
                  outside the United States shall be royalty-free.

         e.       Notwithstanding Paragraph 8(b) to the contrary, MERIDIAN shall
                  pay no royalties with respect to products shipped to
                  Affiliates of MERIDIAN for the sole and exclusive use of such
                  Affiliates.

         f.       All royalty payments shall be due and payable on the 15th day
                  of the calendar quarter immediately succeeding the month in
                  which the sales price was collected. All payments shall be
                  made to such bank account or other location or person as
                  MOLECULAR may designate in writing from time to time.

         g.       MERIDIAN agrees to make and keep full and accurate books and
                  records in sufficient detail to enable royalties payable
                  hereunder to be determined. From time to time on reasonable
                  notice, MOLECULAR's certified public accountants shall have
                  full access to the books and records of MERIDIAN pertaining to
                  activities under this Agreement solely to verify the accuracy
                  of royalty payments. In no event shall such accountants be
                  entitled to make copies of any information relating to a
                  particular customer of MERIDIAN, and such accountants shall
                  not disclose to MOLECULAR the identity of, or any information
                  relating to, any customer of MERIDIAN. Prompt adjustment shall
                  be made by the proper party to compensate for any errors or
                  omissions disclosed by such audit.

9.       Validity and Infringement of U.S. Patent Re. 34,214

         a.       MERIDIAN agrees not to challenge the validity, infringement,
                  or enforceability of U.S. Patent Re. 34,214 either directly or
                  indirectly so long as MERIDIAN has a license under that
                  patent. However, MERIDIAN may raise issues of non-infringement
                  for new products initially sold after December 1, 1996.

         b.       The parties hereby agree that in the event that any claim of
                  U.S. Patent Re. 34,214 is held to be invalid or unenforceable,
                  and such judgment is final and non-appealable, then MERIDIAN
                  shall pay no further royalties with respect to the sale 


           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                      -8-
<PAGE>   9
                  of any of MERIDIAN's products. Notwithstanding the foregoing,
                  MERIDIAN shall have no right to repayment of any amounts
                  previously paid by MERIDIAN on account of such non-infringing
                  or invalidated Patent, provided that the foregoing shall not
                  affect MERIDIAN's right to exercise the Call.

10.      Most Favored Licensee

In the event that MOLECULAR grants or has granted a license under U.S. Patent
Re. 34,214 where such other license includes terms more favorable to the
licensee than those contained in this Agreement, then the terms of this
Agreement shall be adjusted to the more favorable terms of such other license,
provided, however, MERIDIAN adopts any less favorable terms and conditions of
such other license. MOLECULAR shall supply to MERIDIAN's counsel, on an
"ATTORNEYS' EYES ONLY" basis, a copy of all such licenses within thirty days of
entry into such licenses. MOLECULAR and MERIDIAN's counsel shall agree on
redacted licenses or summaries of relevant terms to be supplied to MERIDIAN.

11.      Image Space Software

MOLECULAR shall offer to MERIDIAN to resell MOLECULAR's Image Space software as
an OEM at a discount of XX%. Whenever MERIDIAN sells Image Space software with a
Meridian product, the sale of such Meridian product shall be royalty free.

12.      Disclosure of ENE Materials

The parties agree that the parties can disclose all communications made and
documents prepared in connection with the Early Neutral Evaluation proceeding of
November 14, 1995 to third parties under a confidentiality agreement. The
parties agree that such communications and documents shall not be used in any
connection in any other proceedings.

13.      Destruction or Return of Confidential Materials

The parties and their attorneys agree that they will destroy or return to the
other party, pursuant to Paragraph 22 of the stipulated protective order in this
lawsuit, all documents originating from the other party and marked "Confidential
Information" or "Confidential -- Outside Counsel Only."

14.      No Admission of Wrongdoing

Nothing in this Settlement Agreement shall be construed as an admission of
wrongdoing against any party hereto.

15.      Scope and Transferability

         a.       This Agreement shall be binding upon and inure to the benefit
                  of the parties hereto, and each of them, and each of all of
                  their representatives, attorneys, officers, directors,
                  shareholders, heirs, partners, successors, assigns, licensees,
                  employees, affiliates and agents.


                                      -9-
<PAGE>   10
         b.       The patent license set forth in this Agreement shall be
                  transferable without restriction in the event of a sale or
                  merger of MERIDIAN or a sale of substantially all of the
                  assets of MERIDIAN. No aspect of this Agreement shall inhibit
                  MERIDIAN's ability to enter into any financing agreement,
                  secured, unsecured, or otherwise. MOLECULAR shall promptly
                  sign any consent, verification, or other document reasonably
                  required for facilitation or closing of a sale or merger of
                  MERIDIAN or a financing by MERIDIAN of any type, including a
                  secured financing.

16.      Governing Law

This Agreement shall in all respects be governed, interpreted, and construed in
accordance with the laws of the State of California without regard to its
provisions with respect to conflicts of laws.

17.      Waiver

A waiver of any breach of any provision of this Agreement shall not be construed
as a continuing waiver of other breaches of the same or other provisions of this
Agreement.

18.      Notices

All notices shall be in writing and shall be given by registered or certified
letter to the parties at the addresses indicated above. Either party may change
its address by giving the other party notice of such new address.

19.      Entire Understanding

This Agreement embodies the entire understanding between the parties relating to
the subject matter hereof, whether written or oral, and there are no prior
representations, warranties or agreements between the parties not contained in
this Agreement. Any amendment or modification of any provision of this Agreement
must be in writing, dated and signed by both parties hereto.

20.      Invalidity of Agreement

If any provision of this Agreement is declared invalid or unenforceable by a
court having competent jurisdiction, it is mutually agreed that this Agreement
shall endure except for the part declared invalid or unenforceable by order of
such court. The parties shall consult and use their best efforts to agree upon a
valid and enforceable provision which shall be a reasonable substitute for such
invalid or unenforceable provision in light of the intent of this Agreement.

21.      Counterparts

This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed to be an original.


                                      -10-
<PAGE>   11
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate by their duly-authorized representatives, effective as of
the day and year first above written.

                                              MOLECULAR DYNAMICS, INC.


Dated:  March 29, 1996.                       By:  /s/ James M. Schlater
                                                   -------------------------- 
                                              Name:  James M. Schlater
                                                   -------------------------- 
                                              Title:  Chairman of the Board
                                                    ------------------------- 


                                              MERIDIAN INSTRUMENTS, INC.


Dated:  March 20, 1996.                       By:  /s/ Ian R.N. Bund
                                                   -------------------------- 
                                              Name:  Ian R.N. Bund
                                                   -------------------------- 
                                              Title:  Chairman
                                                    ------------------------- 


                                      -11-
<PAGE>   12
  J. WILLIAM WIGERT, JR. (047,252)
  STEPHEN M. EVERETT (121,619)
  MARIA S. CEFALU (107,937)
  LIMBACH & LIMBACH L.L.P.
  2001 Ferry Building
  San Francisco, CA 94111
  (415) 433-4150

  Attorneys for Defendant 
  MERIDIAN INSTRUMENTS, INC.

  Noemi C. Espinosa (116,753)
  Valerie Russell (172,531)
  BROBECK, PHLEGER & HARRISON
  Two Embarcadero Place
  2200 Geng Road
  Palo Alto, CA 94303
  (415) 424-0160

   Attorneys for Plaintiff 
   MOLECULAR DYNAMICS, INC.
   
                          UNITED STATES DISTRICT COURT

                     FOR THE NORTHERN DISTRICT OF CALIFORNIA

MOLECULAR DYNAMICS, INC.,                   )        Civil Action No.
a California corporation,                   )        C 94-04292 SAW (JSB) ENE
                                            )
                            Plaintiff,      )
                  vs.                       )        STIPULATION AND ORDER OF
                                            )        DISMISSAL WTIH PREJUDICE
MERIDIAN INSTRUMENTS, INC.,                 )
a Michigan corporation,                     )
                            Defendant.      )
                                            )
--------------------------------------      )
                                            )
     AND RELATED COUNTERCLAIM               )
                                            )
                                            )
--------------------------------------

         Plaintiff Molecular Dynamics, Inc. and defendant Meridian Instruments,
Inc., by their attorneys of record hereby stipulate

STIPULATION AND ORDER OF
DISMISSAL WITH PREJUDICE                  - 1 -                  C 94-04292 SAW

EXHIBIT A TO SETTLEMENT AGREEMENT
<PAGE>   13

  to dismissal of all claims and counterclaims asserted in the above-entitled
  action with prejudice.


                                            BROBECK, PHLEGER & HARRISON
                                            Two Embarcadero Place
                                            2200 Geng Road
                                            Palo Alto, CA 94303
                                            (415) 424-0160


Dated:                                      By:
      ------------------------                 ------------------------------
                                               Noemi C. Espinosa
                                               Valerie Russell
                                            Attorneys for Plaintiff
                                            MOLECULAR DYNAMICS, INC.


                                            LIMBACH & LIMBACH L.L.P.
                                            2001 Ferry Building
                                            San Francisco, CA 94111
                                            (415) 433-4150


Dated:                                      By:
      ------------------------                 ------------------------------
                                               J. William Wigert, Jr.
                                               Stephen M. Everett
                                               Maria S. Cefalu
                                            Attorneys for Defendant
                                            MERIDIAN INSTRUMENTS,INC.

IT IS HEREBY ORDERED.


Dated:
      ------------------------                 ------------------------------
                                                  U.S. District Judge


STIPULATION AND ORDER OF
DISMISSAL WITH PREJUDICE                    - 2 -                C 94-04292 SAW

<PAGE>   14
                                IRREVOCABLE PROXY
                           (COUPLED WITH AN INTEREST)


         Molecular Dynamics, Inc., being the record owner of XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX shares of common stock of Meridian Instruments, Inc., a Michigan
corporation, does hereby appoint Ian R. N. Bund as its proxy to execute written
consents of shareholders and to attend all meetings of the stockholders of
Meridian Instruments, Inc. with full power to vote and act for it in the same
manner and extent that it might were it personally present at said meetings.

         The proxy shall have full power to substitute another person as my
proxy and to revoke the appointment of any such substitute proxy.

         This proxy is given in connection with and pursuant to Paragraph 7(a)
of a certain Settlement Agreement dated January ____, 1996 between Molecular
Dynamics, Inc. and Meridian Instruments, Inc. By reason of the rights and
restrictions contained in such Settlement Agreement for the benefit of Meridian
Instruments, Inc. relating to the shares of common stock of Meridian
Instruments, Inc. owned by Molecular Dynamics, Inc., and Ian R. N. Bund being
the Chairman of the Board of Directors of Meridian Instruments, Inc., Molecular
Dynamics, Inc. hereby acknowledges and agrees that this proxy is coupled with an
interest, and therefore in accordance with Section 422(f) of the Michigan
Business Corporation Act, this proxy is irrevocable.


                                             MOLECULAR DYNAMICS, INC.


Dated:  March 29, 1996                       By: /s/ James M. Schlater
                                                 --------------------------

                                             Name:   James M. Schlater
                                                   ------------------------
                                             Title:  Chairman of the Board
                                                   ------------------------


EXHIBIT B TO SETTLEMENT AGREEMENT


           CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR INFORMATION
                            WHICH HAS BEEN STRICKEN


                                           -3-