<PAGE>

                                                                    EXHIBIT 10.5


                         [DTM Corporation Letterhead]

                                 March 30, 2001


Mr. Ronald K. Skaggs
1320 Beazer Court
Bellingham, WA 98226.


Dear Mr. Skaggs:

          The purpose of this letter agreement is to document the terms of the
severance package to which you will be entitled should your employment with the
Company be terminated involuntarily in connection with certain changes in
control of DTM Corporation (the "Company").

          Part One of this letter agreement specifies the terms and conditions
of your severance benefits including a release between you and the Company. Part
Two sets forth certain definitional provisions to be in effect for purposes of
determining your benefit entitlements. Part Three concludes this agreement with
a series of general terms and conditions applicable to your benefits.

                     PART ONE -- CHANGE IN CONTROL BENEFITS

          Upon any Change Related Termination you will become entitled to
receive the special severance benefits set forth below.

          1.   Severance Payments.  You will receive severance payments from the
               ------------------
Company for a period of eighteen (18) months following your Change Related
Termination in an aggregate amount equal to the sum of (A) one and one-half
(1.5) times the annual rate of base salary in effect for you at the time of your
Change Related Termination plus (B) three-fourths (.75) of the maximum bonus
payable to you under the Management Incentive Plan currently in effect at the
time of the Change Related Termination (the "Severance Payments").  The
Severance Payments will be paid to you in equal installments at semi-monthly
intervals over the eighteen (18) month period following your Change Related
Termination.  All Severance Payments under this Paragraph 1 will be subject to
the Company's collection of applicable withholding taxes.

          2.   Health Care Coverage.  Following your Change Related
               --------------------
Termination, the Company will provide continued health care coverage in an
amount equivalent to what you would have been entitled to had you remained in
your current position with the Company under the Company's medical/dental
insurance plan pursuant to your rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") until the earlier of (i) eighteen (18)
                                               -------
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Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 2

months after the Change Related Termination or (ii) the date you are no longer
eligible for COBRA (the "Benefit Continuation").  Nothing in this paragraph is
intended to preclude the Company from amending or terminating any health benefit
plans provided to active employees or former employees, including yourself, at
any time following the execution of this agreement. At the end of the Benefit
Continuation period, you will be entitled to continued health care coverage
pursuant to COBRA at your own expense to the extent permitted by law.

          3.   Options and Stock Issuances.  In the event of a Change in
               ---------------------------
Control or a Change Related Termination, the terms of your Options and Stock
Issuances will continue to be governed by the notice of grant of stock option,
stock option agreement, stock issuance agreement and any other agreement entered
into by you and the Company at the time of, and with respect to, such Option
grants or Stock Issuances; nothing in this agreement shall be construed to alter
or affect the terms of your Options or Stock Issuances.

          4.   Benefit Reduction.  Should any of your severance benefits under
               -----------------
this letter agreement (when aggregated with other such benefits) be deemed to be
parachute payments under Code Section 280G, then the dollar amount of your
severance payment under Paragraphs 1 and 2 will be reduced to the extent (and
only to the extent) necessary to provide you with the maximum after-tax benefit
available, after taking into account any parachute excise tax which might
otherwise be payable by you under Code Section 4999 and any analogous State
income tax provision.

          5.   Restrictive Covenants.
               ---------------------

               (i)   Continuing Obligations.  In exchange for the consideration
                     ----------------------
     set forth in this letter agreement, including, but not limited to, the
     Severance Payments set forth in Part One, you agree that the provisions
     contained in that certain DTM Corporation Confidentiality and Non-Compete
     Agreement executed by you on September 15, 2000 (the "Confidentiality
     Agreement"), including, but not limited to, your agreement not to disclose
     the confidential, proprietary or trade secret information of the Company
     and your agreement not to compete with the Company for a period of two (2)
     years, are enforceable and continue in full force and effect. The
     Confidentiality Agreement is incorporated herein and is attached as Exhibit
                                                                         -------
     B.
     -

               (ii)  Company Property.  In addition to your continuing
                     ----------------
     obligation under the Confidentiality Agreement to return all documents
     embodying any of the Company's confidential, proprietary or trade secret
     information immediately following termination of your employment or upon
     request, you agree that within five (5) days following the termination of
     your employment, or upon request you shall return all Company property
     (whether or not such property contains confidential, proprietary or trade
     secret information) in your possession, including, without limitation,
     brochures, manuals, supplies paid for by the Company, computer systems (the
     hardware and the software loaded on the system, any monitors and docking
     stations, printers, and laptop are included).
<PAGE>

Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 3


               (iii)  Cessation of Benefits.  In the event the Company, upon
                      ---------------------
     reasonable belief, determines that you have breached (i) any provision of
     the Confidentiality Agreement, including but not limited to your Agreement
     not to disclose confidential, proprietary or trade secret information of
     the Company and your agreement not to compete with the Company for a period
     of two (2) years, or (ii) paragraph 5(ii) of Part One of this letter
     agreement, the Company's obligation to provide you the Severance Payments
     and Benefit Continuation set forth in Part One shall immediately cease.

          6.   Release.  Upon termination, your right to receive the Severance
               -------
Payments, Benefit Continuation and other benefits under this letter agreement is
conditioned on your execution and delivery of a Release and Waiver in
substantially the form of attached Exhibit A.
                                   ---------

                            PART TWO -- DEFINITIONS

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

          Board means the Company's Board of Directors.

          Change in Control means any of the following events:

               (i)    a merger, consolidation or reorganization approved by the
     Company's shareholders, unless securities representing more than fifty
     percent (50%) of the total combined voting power of the voting securities
     of the successor corporation are immediately thereafter beneficially owned,
     directly or indirectly and in substantially the same proportion, by the
     persons who beneficially owned the Company's outstanding voting securities
     immediately prior to such transaction;

               (ii)   any shareholder-approved transfer or other disposition of
     all or substantially all of the Company's assets;

               (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 1934 Act) 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
     shareholders; 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
<PAGE>

Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 4

     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;

provided that such event does not involve any group of persons with whom you are
-------- ----
affiliated or in which you have an interest other than ownership of less than 1%
of a class of securities of a publicly traded corporation which you owned prior
to the commencement of the discussions and transactions which result in such
change in control.

          Change Related Termination means an Involuntary Termination which
occurs within twelve (12) months following a Change in Control.

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

          Common Stock means the Company's common stock.

          Health Care Coverage means the continued medical/dental, vision and
disability insurance coverage to which you and your eligible dependents may
become entitled under this agreement upon the Change Related Termination of your
employment other than Termination for Cause.

          Involuntary Termination means the termination of your Service which
occurs by reason of:

               (i)   your involuntary dismissal or discharge by the Company
     (other than a Termination for Cause), or

               (ii)  your voluntary resignation following (A) a change in your
     position with the Company or Parent or Subsidiary employing you which
     materially reduces your duties and responsibilities, (B) a reduction in
     your level of compensation (including base salary, fringe benefits and
     target bonus under any performance based bonus or incentive programs) by
     more than fifteen percent (15%) or (C) a relocation of your place of
     employment by more than fifty (50) miles, provided and only if such change,
     reduction or relocation is effected by the Company without your consent.

          1934 Act means the Securities Exchange Act of 1934, as amended.

          Option means any option granted to you under the Company's 1999 Stock
Incentive Plan, 1998 Stock Option Plan, 1996 Stock Option Plan or any other
equity incentive plan subsequently adopted by the Company or any successor which
is outstanding at the time of your subsequent Change Related Termination.

          Stock Issuance means the issuance of unvested shares of Common Stock
under the Company's 1999 Stock Incentive Plan, the 1998 Stock Option Plan, the
1996 Stock Option Plan or any other equity incentive plan subsequently adopted
by the Company or any successor.

          Termination for Cause means a termination of your employment with the
Company by reason of your commission of any act of fraud, embezzlement or
dishonesty, or
<PAGE>

Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 5

your unauthorized use or disclosure of confidential information or trade secrets
of the Company or its subsidiaries or your material failure to perform your
duties as specified by the Chief Executive Officer of the Company or the Board
of Directors of the Company.

                    PART THREE -- MISCELLANEOUS PROVISIONS

          1.   Termination for Cause.  Should your termination constitute a
               ---------------------
Termination for Cause, the Company shall 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, and no
benefits will be payable to you under Part One of this letter agreement.

          2.   General Creditor Status.  The benefits to which you may become
               -----------------------
entitled under this letter agreement will be paid, when due, from the general
assets of the Company. Your right (or the right of the executors or
administrators of your estate) to receive any such payments 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 of the Company.

          3.   Death.  Should you die before receipt of all benefits to which
               -----
you become entitled under this letter agreement, then the payment of such
benefits will be made, on the due date or dates hereunder had you survived, to
the executors or administrators of your estate. Should you die before you
exercise your Options, then each such Option may be exercised, during the
applicable exercise period in effect hereunder for those Options at the time of
your death, by the executors or administrators of your estate or by person to
whom the Option is transferred pursuant to your will or in accordance with the
laws of inheritance.

          4.   Miscellaneous.  This letter agreement will be binding upon you,
               -------------
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 Texas. You and the Company hereby
irrevocably agree that the exclusive forum for any suit, action, or other
proceeding arising out of or in any way related to this agreement shall be in
the state or federal courts in Texas, and you and the Company agree to the
exclusive personal jurisdiction and venue of any court in Travis County, Texas.
This agreement incorporates the entire agreement between you and the Company
relating to the subject of severance benefits and supersedes all prior
agreements and understandings with respect to such subject matter, except for
the Confidentiality Agreement, which is incorporated herein.  This agreement may
only be amended by written instrument signed by you and another duly authorized
officer of the Company.  If any provision of this letter agreement as applied to
any party 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 shall 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 shall
<PAGE>

Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 6

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 shall be
stricken and the remainder of this letter agreement shall continue in full force
and effect.

          5.   Remedies.  All rights and remedies provided pursuant to this
               --------
letter agreement or by law will be cumulative, and no such right or remedy will
be exclusive of any other.  A party may pursue any one or more rights or
remedies hereunder or may seek damages or specific performance in the event of
another party's breach hereunder or may pursue any other remedy by law or
equity, whether or not stated in this letter agreement.

          6.   Legal and Equitable Remedies.  Because your services are personal
               ----------------------------
and unique and because you will have access to and become acquainted with the
confidential, proprietary or trade secret information of the Company, the
Company shall have the right to enforce this letter agreement and the
Confidentiality Agreement, by injunction, specific performance, or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this letter agreement.

          7.   Assistance to the Company.  You agree to be available after your
               -------------------------
termination of employment with the Company to assist in locating files, data or
information regarding the work you have been doing for the Company, upon
reasonable request by the Company.  You also agree to make yourself available
upon request by the Company to assist the Company in the transaction of any
active matters on which you are currently working and the prosecution or defense
of any litigation involving the Company concerning any matter of which you have
knowledge as a result of your position within the Company.  You will be
reimbursed for travel and will receive a per diem equivalent to the daily rate
of your base salary that was in effect as of the date of your Change Related
Termination for the days you provide such service.

          8.   Recovery of Attorney's Fees.  In the event of any litigation
               ---------------------------
arising from or relating to this agreement, the prevailing party in such
litigation proceedings shall be entitled to recover, from the non-prevailing
party, the prevailing party's costs and reasonable attorney's fees, in addition
to all other legal or equitable remedies to which it may otherwise be entitled.

          9.   No Employment or Service Contract.  Nothing in this agreement
               ---------------------------------
shall confer upon you any right to continue in the employment of the Company for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company or you, which rights are hereby expressly reserved
by each, to terminate your employment at any time for any reason whatsoever,
with or without cause.

                           [Signature page follows]
<PAGE>

Mr. Ronald K. Skaggs                                              March 30, 2001
                                                                          Page 7

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


                                   DTM CORPORATION


                                   By: /s/ Geoffrey W. Kreiger
                                       -----------------------
                                   Name:  Geoffrey W. Kreiger
                                   Title: Chief Financial Officer and Secretary


ACCEPTED AND AGREED TO:


Signature: /s/ Ronald K. Skaggs
           -----------------------
Printed Name: Ronald K. Skaggs

Dated: March 30, 2001
<PAGE>

                                   EXHIBIT A
                                   ---------

                         RELEASE AND WAIVER OF CLAIMS
                         ----------------------------

          In consideration of the payments and other benefits to which I have
become entitled, pursuant to that certain letter agreement between DTM
Corporation, a Texas corporation (the "Company"), and me dated March 30, 2001
(the "Letter Agreement"), in connection with the termination of my employment on
this date, I, Ronald K. Skaggs, hereby furnish the Company with this release and
waiver of claims (the "Release and Waiver").

          By signing this Release and Waiver, I acknowledge and agree that
absent this Release and Waiver, I have no legal entitlement to the consideration
provided in the Letter Agreement and that the consideration given to me
represents good and sufficient value for the releases and other agreements by me
set forth in this Release and Waiver.

                                   Agreement
                                   ---------

          By signing this Release and Waiver and accepting the severance as
outlined in the Letter Agreement, I agree to waive, release, and forever
discharge the Company and its parents, successors, assigns, divisions,
subsidiaries, affiliates, partners, officers, directors, executives, investors,
shareholders, managers, supervisors, employees, agents, attorneys and
representatives (the "Released Parties" or "Releasees"), from any and all
claims, demands, and causes of action which I have or claim to have, whether
known or unknown, of whatever nature, which exists or may exist as of the date
of my execution of this Release and Waiver. "Claims," "demands," and "causes of
action" include, but are not limited to, claims based on contract, fraud,
equity, tort, discrimination, harassment, retaliation, personal injury,
constructive discharge, emotional distress, public policy, wage, and hour law,
defamation, claims for debts, accounts, attorneys' fees, compensatory damages,
punitive damages, and/or liquidated damages, claims for vesting or accelerated
vesting of options to purchase the Company's Common Stock, and any and all
claims arising under the Americans with Disabilities Act, the Family and Medical
Leave Act, or any other federal or state statute governing employment, including
but not limited to Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Texas Labor Code, and the Texas Commission
on Human Rights Act, as such statutes may have been or may be amended from time
to time.

          Without in any way limiting the generality of the above paragraph, by
signing this Release and Waiver and accepting the severance outlined above, I
specifically agree to release all claims, rights, or benefits I may have for age
discrimination arising out of or under the Age Discrimination in Employment Act
of 1967, 29 U.S.C. (S) 621 ("ADEA"), et seq. as the ADEA may have been or may be
amended, or any equivalent or comparable provision of state or local law,
including, without limitation, the Texas Commission on Human Rights Act.

          I represent and warrant that I do not presently have on file, and
agree that I will not hereafter file, any claims, charges, grievances or
complaints against the Company and/or the Released Parties in or with any
administrative, state, federal or governmental entity, agency, board or court,
or before any other tribunal or panel or arbitrators, public or private, based
upon
<PAGE>

any actions or omissions by the Company and/or the Released Parties occurring
prior to the date of my execution of this Release and Waiver, with the exception
of claims brought by me to challenge the validity of this Release and Waiver
under the Age Discrimination in Employment Act or the Older Workers Benefit
Protection Act.

          Finally, I represent and agree that I am the sole and lawful owner of
all rights, title and interest in and to all released matters, claims and
demands arising out of or in any way related to my employment with the Company
and/or the termination thereof.

                       Acceptance of Release and Waiver
                       --------------------------------

          I have twenty-one (21) days to consider this Release and Waiver, and
offer of severance contained in the Letter Agreement, and I may revoke this
Release and Waiver at any time during the first seven (7) days following my
execution of this Release and Waiver by delivering written notice of revocation
to the Company's Chief Executive Officer, no later than five (5:00) p.m. on the
seventh (7th) day after execution. I received this Release and Waiver on ___ __,
2001. The settlement offer contained in the Letter Agreement will automatically
expire if this Release and Waiver, fully executed by me, is not received by
Company's Chief Executive Officer, on or before [Insert Date 21 days after date
received].

          This Release and Waiver will become effective, irrevocable and fully
enforceable upon the expiration of seven (7) days following the date of my
execution of this Release and Waiver (the "Effective Date"), provided that I
have timely executed this Release and Waiver and I have not exercised my right
to revoke this Release and Waiver.

                             Other important terms
                             ---------------------

     .    Nothing in this Release and Waiver shall constitute or be treated as
          an admission of any wrongdoing or liability on the part of the Company
          and/or the Released Parties.

     .    I have been advised to consult with an attorney of my choosing prior
          to entering into this Release and Waiver.

     .    I understand and agree that in any dispute between me and the Company
          regarding the terms of this Release and Waiver and/or any alleged
          breach thereof, that the prevailing party shall be entitled to recover
          its costs and reasonable attorneys' fees arising out of such dispute,
          except that the Company shall not, by virtue of this Release and
          Waiver, be entitled to recover its costs or attorney's fees resulting
          from challenges to the validity of this Release and Waiver by me under
          the Age Discrimination in Employment Act or the Older Workers Benefit
          Protection Act. Nothing in this Release and Waiver is intended to
          preclude the Company from recovering attorney's fees or costs
          specifically authorized under federal law.

     .    This Release and Waiver is binding on my representatives, heirs,
          executors, administrators, successors and assigns.
<PAGE>

     .    I am personally responsible for the payment of all federal, state and
          local taxes that are due, or may be due, for any payments and other
          consideration received by me under the Letter Agreement. I agree to
          indemnify the Company and hold the Company harmless, from any and all
          taxes, penalties and/or other assessments that the Company is, or may
          become, obligated to pay on account of any payments and other
          consideration made to me under the Letter Agreement and this Release
          and Waiver.

     .    The terms and existence of this Release and Waiver are strictly
          confidential and may not be disclosed to any other person or entity,
          with the exception of my immediate family members and legal and
          financial advisors.

     .    I agree not to disparage or in any way criticize the Company and/or
          its officers, managers, supervisors, employees, investors, products,
          services, or technology at any time in the future. Nothing contained
          in this Paragraph is intended to prevent me from testifying truthfully
          in any legal proceeding.

     .    This Release and Waiver, and any agreements or documents referred to
          herein, including but not limited to, the Letter Agreement, constitute
          an integrated, written contract, expressing the entire agreement
          between the Company and me with respect to the subject matter hereof.
          In this regard, I represent and warrant that I am not relying on any
          promises or representations that do not appear in this Release and
          Waiver. This Release and Waiver can be amended or modified only by a
          written agreement, signed by me and the Company.

     .    This Release and Waiver shall, in all respects, be interpreted,
          enforced and governed under the laws of the State of Texas applicable
          to contracts executed and performed in Texas without giving effect to
          conflicts of law principles.

     .    With respect to any suit, action, or other proceeding arising from (or
          relating to) this Release and Waiver, the Company and I hereby
          irrevocably agree to the exclusive personal jurisdiction and venue of
          the United States District Court for the Western District of Texas
          (and any Texas State Court within Travis County, Texas).

     .    I agree that if any provision or portion of any provision of this
          Release and Waiver is held to be invalid or unenforceable or to be
          contrary to public policy or any law, for any reason, the remainder of
          the Release and Waiver shall not be affected thereby.
<PAGE>

     .    This Release and Waiver may be executed in separate counterparts and
          by facsimile, and each such counterpart shall be deemed an original
          with the same effect as if the Company and I signed the same document.


                                        DTM Corporation

                                        By:_______________________________

                                        Its:______________________________

[EMPLOYEE NAME]                         Date:_____________________________

By:________________________

Date:______________________
<PAGE>

                                   EXHIBIT B
                                   ---------

                           CONFIDENTIALITY AGREEMENT
                           -------------------------