<PAGE>
                                                                   Exhibit 10.37

                         CREDENCE SYSTEMS CORPORATION
                              215 Fourier Avenue
                               Fremont, CA 94539

                                March 30, 2001

Mr. John R. Detwiler

Dear John:

          We are pleased to inform you that the Company's Board of Directors has
approved a special severance benefit program for you.  The purpose of this
letter agreement is to set forth the terms and conditions of your severance
benefits and to explain the limitations that will govern their overall value.

          Your severance package will become payable should the Company
terminate your employment, or should you otherwise resign from the Company,
under certain circumstances following a substantial change in ownership or
control of the Company or upon the appointment of a new permanent Chief
Executive Officer.  To understand the full scope of your benefits, you should
familiarize yourself with the definitional provisions of Part One of this letter
agreement.  The benefits comprising your severance package are detailed in Part
Two, and certain restrictions applicable to your benefits are specified in Part
Three.  Part  Four sets forth the dollar limitation which will govern your total
severance package in the event your termination occurs in connection with a
change in control or ownership of the Company.  Part Five deals with ancillary
matters affecting your severance arrangement.

                            PART ONE -- DEFINITIONS

          For purposes of this letter agreement, the following definitions will
be in effect:

          Average Compensation means the average of your W-2 wages from the
Company for the five (5) calendar years (or such fewer number of calendar years
of employment with the Company) completed immediately prior to the calendar year
in which a Change in Control is effected.  Any W-2 wages for a partial year of
employment will be annualized, in accordance with the frequency which such wages
are paid during such partial year, before inclusion in your Average
Compensation.

          Base Salary means the monthly rate of base salary in effect for you
immediately prior to the Change in Control or Change in Management (as
applicable) or (if greater) the monthly rate of base salary in effect at the
time of your Involuntary Termination.

          Board means the Company's Board of Directors.

          Change in Control means a change in the ownership or control of the
Company effected through any of the following transactions:
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                                                                          Page 2

               (i)    a merger or consolidation approved by the Company's
          stockholders in which securities possessing more than fifty percent
          (50%) of the total combined voting power of the Company's outstanding
          securities are transferred to a person or persons different from the
          persons holding those securities immediately prior to such
          transaction;

               (ii)   any stockholder-approved sale, transfer or other
          disposition of all or substantially all of the Company's assets in
          complete liquidation or dissolution of the Company;

               (iii)  the acquisition, directly or indirectly, by any person or
          related group of persons (other than the Company or a person that
          directly or indirectly controls, is controlled by or is under common
          control with, the Company) of beneficial ownership (within the meaning
          of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
          securities possessing more than fifty percent (50%) of the total
          combined voting power of the Company's outstanding securities pursuant
          to a tender or exchange offer made directly to the Company's
          stockholders; or

               (iv)   a change in the composition of the Board over a period of
          thirty-six (36) consecutive months or less such that a majority of the
          Board members ceases, by reason of one or more contested elections for
          Board membership, to be comprised of individuals who either (A) have
          been Board members continuously since the beginning of such period or
          (B) have been elected or nominated for election as Board members
          during such period by at least a majority of the Board members
          described in clause (A) who were still in office at the time the Board
          approved such election or nomination.

          Change in Management means the appointment by the Board of a new
permanent Chief Executive Officer.

          Code means the Internal Revenue Code of 1986, as amended.

          Common Stock means the Company's common stock.

          Company means Credence Systems Corporation, a Delaware corporation, or
any successor corporation, whether or not resulting from a Change in Control.

          Disability means your inability to perform the normal and usual duties
of your position with the Company by reason of any physical or medical
impairment which is expected to result in death or continue for a period of
twelve (12) consecutive months or more.
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                                                                          Page 3

          Fair Market Value means, with respect to the shares of Common Stock
subject to any of your Options, the closing selling price per share of Common
Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market.  If there is no
closing selling price reported for the Common Stock on the date in question,
then the Fair Market Value will be the closing selling price on the last
preceding date for which such report exists.

          Health Care Coverage means the continued health care coverage to which
you and your eligible dependents may be entitled during any Salary Continuation
Period in effect for you under this letter agreement.

          Involuntary Termination means (i) the involuntary termination of your
employment with the Company other than a Termination for Cause or (ii) your
voluntary resignation within ninety (90) days following (A) a material reduction
in your duties and responsibilities as Senior Vice President and Chief Financial
Officer of the Company or (B) a material reduction in your level of cash
compensation (rate of Base Salary plus target bonus under any corporate-
performance based bonus or incentive programs) or (C) the consummation date of a
Change of Control pursuant to which a comparable position in the Company is not
offered to you by the acquiring entity in the Change of Control transaction.

          In no event shall any of the following constitute grounds for a
resignation qualifying as an Involuntary Termination under this letter
agreement:

          -    a change or other alteration in your duties which occurs by
reason of the Company's conversion from a public company into a subsidiary or
division of the acquiring entity in a Change in Control transaction but which
does not otherwise materially affect your day-to-day functions; or

          -    a general reduction in the level of base salary or target bonuses
payable to the executive officers of the Company which is applied to all or
substantially all of the Company's executive officers in connection with a cost
reduction program.

          In addition, an Involuntary Termination will not be deemed to occur in
the event your employment terminates by reason of your death or Disability or a
Termination for Cause or in the event the acquiring entity in a Change in
Control transaction offers you a position comparable to your position with the
Company immediately prior to the Change in Control and at substantially the same
level of cash compensation.

          Life Insurance Coverage means the continued coverage to which you may
be entitled under the Company's group-term and executive life insurance plans
during any Salary Continuation Period in effect for you under this letter
agreement.
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                                                                          Page 4

          Option means any option granted to you under the Plan which is
outstanding at the time of the Change in Control or Change in Management (as
applicable) or upon your subsequent Involuntary Termination.  In connection with
a Change in Control, your Options will be divided into two (2) separate
categories as follows:

               Acquisition-Accelerated Options: any outstanding Option (or
               -------------------------------
     installment thereof) which automatically accelerates, pursuant to the
     acceleration provisions of the agreement evidencing that Option, upon a
     Change in Control.

               Severance-Accelerated Options: any outstanding Option (or
               -----------------------------
     installment thereof) which, pursuant to Part Two of this letter agreement,
     accelerates upon your Involuntary Termination following the Change in
     Control.

          Option Parachute Payment means, with respect to any Acquisition-
Accelerated Option or any Severance-Accelerated Option, the portion of that
Option deemed to be a parachute payment under Code Section 280G and the Treasury
Regulations issued thereunder. The portion of such Option which is categorized
as an Option Parachute Payment will be calculated in accordance with the
valuation provisions established under Code Section 280G and the applicable
Treasury Regulations and will include an appropriate dollar adjustment to
reflect the lapse of your obligation to remain in the Company's employ as a
condition to the vesting of the accelerated installment. In no event, however,
will the Option Parachute Payment attributable to any Acquisition-Accelerated
Option or Severance-Accelerated Option (or accelerated installment) exceed the
spread (the excess of the Fair Market Value of the accelerated option shares
over the option exercise price payable for those shares) existing at the time of
acceleration.

          Other Parachute Payment means any payment in the nature of
compensation (other than the benefits to which you become entitled under Part
Two of this letter agreement) which are made to you in connection with the
Change in Control and which accordingly qualify as parachute payments within the
meaning of Code Section 280G(b)(2) and the Treasury Regulations issued
thereunder.  Your Other Parachute Payment will include (without limitation) the
Present Value, measured as of the Change in Control, of the aggregate Option
Parachute Payment attributable to your Acquisition-Accelerated Options (if any).

          Parachute Payment means any payment or benefit provided you under Part
Two of this letter agreement  in connection with a Change in Control (other than
the Option Parachute Payment attributable to your Severance-Accelerated Options)
which is deemed to constitute a parachute payment within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder.

          Plan means (i) the Company's 1993 Stock Option Plan, as amended or
restated from time to time, and (ii) any successor stock incentive plan
subsequently implemented by the Company.
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                                                                          Page 5

          Present Value means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Involuntary
Termination, including (without limitation) the Option Parachute Payment
attributable to your Severance-Acceleration Options, the additional benefits to
which you become entitled under Part Two of this letter agreement and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options.  The
Present Value of each such payment will be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable federal rate in effect at the
time of such determination, compounded semi-annually to the effective date of
the Change in Control or Change.

          Salary Continuation Period means the period for which the payment of
your Base Salary may, pursuant to Part Two of this letter agreement, be
continued following an Involuntary Termination of your employment within a
specified period following a Change in Control or Change in Management (as
applicable).

          Termination for Cause means the Company's termination of your
employment for any of the following reasons: (i) your commission of any act of
fraud, embezzlement or dishonesty, (ii) your unauthorized use or disclosure of
any confidential or proprietary information of the Company, (iii) any
intentional misconduct by you which has a materially adverse effect upon the
Company's business or reputation or (iv) your continued failure to perform the
major duties, functions and responsibilities of your position after you have
received written notice from the Company identifying the deficiencies in your
performance and have been given a reasonable opportunity to cure those
deficiencies, if curable.

                         PART TWO - SEVERANCE BENEFITS

          Should your employment with the Company terminate by reason of an
Involuntary Termination within twelve (12) months after a Change in Control or
Change in Management, then you will become entitled to receive the severance
benefits provided under this Part Two.  However, those benefits will be subject
to the restrictive covenants of Part Three of this letter agreement and will be
in lieu of all other severance benefits to which you might otherwise be entitled
upon such termination of your employment.   In addition, any severance benefits
paid to you in connection with an Involuntary Termination following a Change in
Control will be subject to the dollar limitation of Part Four.

          1.   Accelerated Vesting.
               -------------------

               (a)  Change in Management.  Should your employment with the
     Company terminate by reason of an Involuntary Termination within twelve
     (12) months after a Change in Management, then a portion of each
     outstanding Option which you hold at the time of your Involuntary
     Termination, to the extent not otherwise exercisable for all the shares of
     Common Stock subject to that
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                                                                          Page 6

     Option, will immediately become exercisable on an accelerated basis and may
     be exercised for any or all of the shares subject to that accelerated
     portion until the earlier of (i) the expiration of the option term or (ii)
                       -------
     the end of the three (3)-month period following the date of your
     Involuntary Termination. The number of option shares which shall vest and
     become exercisable upon such an accelerated basis in connection with such
     Involuntary Termination shall be equal to the number of shares for which
     the Option would have become exercisable under the Exercise Schedule in
     effect for that Option had you remained in the Company's employ for an
     additional twelve (12) month period after such Involuntary Termination.
     However, to the extent any Option is not exercisable for one or more shares
     at the time of your Involuntary Termination, after taking into account the
     acceleration provided under this paragraph, the Option will immediately
     terminate with respect to those shares.

               (b)  Change in Control.  Should your employment with the Company
     terminate by reason of an Involuntary Termination within twelve (12) months
     after a Change in Control, each outstanding Option which you hold at the
     time of your Involuntary Termination, to the extent not otherwise
     exercisable for all the shares of Common Stock subject to that Option, will
     immediately become exercisable for all those option shares and may be
     exercised for any or all of those shares as fully vested shares until the
     earlier of (i) the expiration of the option term or (ii) the end of the
     -------
     three (3)-month period following the date of your Involuntary Termination.

          2.   Severance Payment.
               -----------------

          You will be entitled to salary continuation payments at your
applicable rate of Base Salary for a Salary Continuation Period of  twelve (12)
months.  These salary continuation payments will be made to you in accordance
with the Company's normal payroll practices and will be subject to the Company's
collection of all applicable federal and state income and employment withholding
taxes.

          3.   Health Care Coverage.
               --------------------

          Should you elect continued health care coverage under the Company's
medical plan pursuant to your rights under Code Section 4980B ("COBRA"), the
Company will provide such COBRA coverage, without charge, to you and your
eligible dependents.  Such Company-paid coverage will continue until the earlier
                                                                         -------
of (i) the expiration of your Salary Continuation Period or (ii) the first date
on which you are covered under another employer's health benefit program without
exclusion for any pre-existing medical condition.  Any additional health care
coverage to which you and your dependents may be entitled under COBRA following
the period of such Company-paid coverage will be at your sole cost and expense.
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                                                                          Page 7


          4.   Life Insurance Coverage.
               -----------------------

          You will be entitled to Life Insurance Coverage through your continued
participation in the Company's group term and executive life insurance plans
following your Involuntary Termination, and the Company will pay the entire
premium charged for such continued Life Insurance Coverage.  Such Company-paid
coverage will continue until the earlier of (i) the expiration of your Salary
                                 -------
Continuation Period or (ii) the first date on which you are provided with
comparable coverage under another employer's life insurance plan.  However, you
will be responsible for the satisfaction of any income and employment tax
liability attributable to your Company-paid Life Insurance Coverage.

          Your payments and benefits under Paragraphs 2, 3 and 4 of this Part
Two will immediately terminate in the event you fail to abide by the restrictive
covenants set forth in Part Three of this letter agreement.   In addition, those
payments and benefits will be subject to the dollar limitation of Part Four of
this letter agreement in the event of your Involuntary Termination following a
Change in Control.

                       PART THREE -- CONSULTING SERVICES
                       AND SPECIAL RESTRICTIVE COVENANTS

          1.   Consulting Services.
               -------------------

          In consideration for the salary continuation payments to which you
become entitled under Part Two,  you will make yourself available during the
Salary Continuation Period to render such consulting services to the Company
within your area of expertise as may reasonably be requested by the Company's
Chief Executive Officer, but in no event may more than ten (10) hours of such
services will be required of you per month.

          2.   Cessation of Benefits.
               ---------------------

          Your Salary Continuation Period will immediately terminate, and all
salary continuation payments and Company-paid Health Care Coverage and Life
Insurance Coverage will immediately cease, should  you:

               (a)  own, manage, operate, join, control or participate in the
     ownership, management, operation or control of, or be employed by or
     connected in any manner with, any enterprise which is engaged in any
     business competitive with or similar to that of the Company; provided,
                                                                  --------
     however, that such restriction will not apply to any passive investment
     representing an interest of less than one percent (1%) of an outstanding
     class of publicly-traded securities of any corporation or other enterprise;
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                                                                          Page 8

               (b)  encourage or solicit any of the Company's employees to leave
     the Company's employ for any reason or interfere in any other manner with
     employment relationships at the time existing between the Company and its
     employees; or

               (c)  induce any of the Company's clients, customers, suppliers,
     vendors, distributors, licensors or licensees to terminate their existing
     business relationships with the Company or interfere in any other manner
     with any existing business relationship between the Company and any client,
     customer, supplier, vendor, distributor, licensor, licensee  or other third
     party.

                      PART FOUR -- LIMITATION ON BENEFITS

          The benefit limitation of this Part Four shall be applicable only to
the extent the payments and benefits made to you pursuant to Paragraphs 2, 3 and
4 of Part Two are attributable to your Involuntary Termination following a
Change in Control.

          1.   Benefit Limit.
               -------------

          The aggregate Present Value (measured as of the Change in Control) of
the benefits to which you become entitled under Part Two at the time of your
Involuntary Termination, namely, the salary continuation payments, the Option
Parachute Payment attributable to your Severance-Accelerated Options and your
Company-paid Health Care Coverage and Life Insurance Coverage, will in no event
exceed in amount the greater of the following dollar amounts (the "Benefit
                     -------
Limit"):

               (a)  2.99 times your Average Compensation, less the Present
     Value, measured as of the Change in Control, of all Other Parachute
     Payments to which you are entitled, or

               (b)  the amount which yields you the greatest after-tax amount of
     benefits under Part Two of this letter agreement after taking into account
     any excise tax imposed under Code Section 4999 on the payments and benefits
     which are provided you under Part Two or which constitute Other Parachute
     Payments.

          The Option Parachute Payment attributable to the accelerated vesting
of your Acquisition-Accelerated Options at the time of the Change in Control
shall also be subject to the Benefit Limitation.  However, no other terms or
provisions of your Acquisition-Accelerated Options shall be affected by this
letter agreement.
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                                                                          Page 9

          2.   Resolution Procedure.
               --------------------

          In the event there is any disagreement between you and the Company as
to whether one or more payments to which you become entitled in connection with
either the Change in Control or your subsequent Involuntary Termination
constitute Parachute Payments, Option Parachute Payments or Other Parachute
Payments or as to the determination of the Present Value of any of those
payments, such dispute will be resolved as follows:

               (i)    In the event temporary, proposed or final Treasury
          Regulations in effect at the time under Code Section 280G (or
          applicable judicial decisions) specifically address the status of any
          such payment or the method of valuation therefor, the characterization
          afforded to such payment by the Regulations (or such decisions) will,
          together with the applicable valuation methodology, be controlling.

               (ii)   In the event Treasury Regulations (or applicable judicial
          decisions) do not address the status of any payment in dispute, the
          matter will be submitted for resolution to independent tax counsel
          mutually acceptable to you and the Company ("Independent Counsel").
          The resolution reached by Independent Counsel will be final and
          controlling; provided, however, that if in the judgment of Independent
                       --------
          Counsel the status of the payment in dispute can be resolved through
          the obtainment of a private letter ruling from the Internal Revenue
          Service, a formal and proper request for such ruling will be prepared
          and submitted by Independent Counsel, and the determination made by
          the Internal Revenue Service in the issued ruling will be controlling.
          All expenses incurred in connection with the retention of Independent
          Counsel and (if applicable) the preparation and submission of the
          ruling request will be shared equally by you and the Company.

               (iii)  In the event Treasury Regulations (or applicable judicial
          decisions) do not address the appropriate valuation methodology for
          any payment in dispute, the Present Value thereof will, at the
          Independent Counsel's election, be determined through an independent
          third-party appraisal, and the expenses incurred in obtaining such
          appraisal will be shared equally by you and the Company.

          3.   Status of Benefits.
               ------------------

               A.     No benefits shall be provided you under Part Two of this
letter agreement (including the accelerated vesting of your outstanding Options,
the salary continuation payments and the Company-paid Health Care Coverage and
Life Insurance Coverage) until the
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                                                                         Page 10

Present Value of the Option Parachute Payment attributable to both your
Severance-Accelerated Options and your Acquisition-Accelerated Options has been
determined and the status of any payments in dispute under Paragraph 2 above has
been resolved in accordance therewith. The post-service exercise period in
effect for your Options shall be stayed and shall not run until the resolution
process hereunder is completed.

               B.   Once the requisite determinations under Paragraph 2 have
been made, then to the extent the aggregate Present Value, measured as of the
Change in Control, of (i) the Option Parachute Payment attributable to your
Severance-Accelerated Options (or installments thereof) plus (ii) the Parachute
Payment attributable to your other benefit entitlements under Part Two of this
letter agreement would, when added to the Present Value of all your Other
Parachute Payments (including the Option Parachute Payment attributable to your
Acquisition-Accelerated Options), exceed the Benefit Limit, your salary
continuation payments will first be reduced, and then the period of your
Company-paid Health Care Coverage and Life Insurance Coverage will be shortened,
to the extent necessary to assure that such Benefit Limit is not exceeded.

                          PART FIVE -- MISCELLANEOUS

          1.   Termination for Cause.
               ---------------------

          Should your employment cease by reason of a Termination for Cause or
should you depart or voluntarily resign under circumstances which would
otherwise constitute grounds for a Termination for Cause, then the Company will
only be required to pay you (i) any unpaid compensation earned for services
previously rendered through the date of such termination and (ii) any accrued
but unpaid vacation benefits or sick days, and no benefits will be payable to
you under Part Two of this letter agreement.

          2.   Death.
               -----

          Should you die before receipt of one or more salary continuation
payments to which you become entitled under this letter agreement, then those
payments will be made to the executors or administrators of your estate.  Should
you die before you exercise all your outstanding Options as accelerated
hereunder, then such Options may be exercised, within twelve (12) months after
your death, by the executors or administrators of your estate or by persons to
whom the Options are transferred pursuant to your will or in accordance with the
laws of inheritance.  In no event, however, may any such Option be exercised
after the specified expiration date of the option term.

          3.   General Creditor Status.
               -----------------------

          All cash payments to which you become entitled hereunder will be paid,
when due, from the general assets of the Company, and no trust fund, escrow
arrangement or other
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                                                                         Page 11

segregated account will be established as a funding vehicle for such payment.
Accordingly, your right (or the right of the personal representatives or
beneficiaries of your estate) to receive such cash payments hereunder will at
all times be that of a general creditor of the Company and will have no priority
over the claims of other general creditors.

          4.   Indemnification.
               ---------------

          To the maximum extent permitted by applicable law, the indemnification
provisions for Officers and Directors under the Company By-Laws and Certificate
of Incorporation and pursuant to contract will be extended to you, during the
period following your Involuntary Termination, with respect to any and all
matters, events or transactions occurring or effected during your employment
with the Company.

          5.   Miscellaneous.
               -------------

          This letter agreement will be binding upon the Company, its successors
and assigns (including, without limitation, the surviving entity in any Change
in Control) and is to be construed and interpreted under the laws of the State
of California.  This letter agreement supersedes all prior agreements between
you and the Company relating to the subject of severance benefits payable upon a
change in control or ownership of the Company or a change in management, and you
will not be entitled to any other severance benefits upon such a termination
other than those that are provided in this letter agreement or your stock option
agreements and the Plan.  This letter agreement specifically supersedes those
provisions of the employee offer letter agreement dated March 12, 1999 by and
between the Company and you as such provisions relate to the subject matter of
this letter agreement.  This letter may only be amended by written instrument
signed by you and an authorized officer of the Company.  If any provision of
this letter agreement as applied to you or the Company or to any circumstance
should be adjudged by a court of competent jurisdiction to be void or
unenforceable for any reason, the invalidity of that provision will in no way
affect (to the maximum extent permissible by law) the application of such
provision under circumstances different from those adjudicated by the court, the
application of any other provision of this letter agreement, or the
enforceability or invalidity of this letter agreement as a whole.  Should any
provision of this letter agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision will be deemed amended to the extent necessary
to conform to applicable law so as to be valid and enforceable or, if such
provision cannot be so amended without materially altering the intention of the
parties, then such provision will be stricken and the remainder of this letter
agreement will continue in full force and effect.

          6.   At Will Employment.
               ------------------

          Nothing in this letter agreement is intended to provide you with any
right to continue in the employ of the Company (or any subsidiary) for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any
<PAGE>

                                                                         Page 12

subsidiary), which rights are hereby expressly reserved by each, to terminate
your employment at will or as otherwise specified in your employment contract.
<PAGE>

                                                                         Page 13

          Please indicate your acceptance of the foregoing by signing the
enclosed copy of this letter and returning it to the Company.

                                 Very truly yours,


                                 CREDENCE SYSTEMS CORPORATION

                                 By: /s/ Graham Siddall
                                    ---------------------------------
                                 Name:    Graham Siddall
                                       ------------------------------
                                 Title:   President & CEO
                                        -----------------------------


                                  ACCEPTANCE

          I hereby agree to all the terms and provisions of the foregoing letter
agreement governing the special benefits to which I may become entitled upon an
involuntary termination of my employment, or my voluntary resignation, under
certain prescribed circumstances following a change in control or ownership of
the Company or the appointment of a new permanent Chief Executive Officer of the
Company.  I also have had an opportunity to consult with my own counsel.  I
acknowledge that Brobeck, Phleger & Harrison LLP serves as counsel to the
Company with respect to the foregoing letter agreement.

                         Signature:    /s/ John R. Detwiler
                                    --------------------------------------------
                         Dated:     March 30, 2001
                                ------------------------------------------------