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                                                                    EXHIBIT 10.2


February 13, 1997




Richard E. Clemens
3288 Muirfield Drive
Chambersburg, PA 17201

Dear Rick:

The Board of Directors of The Monarch Machine Tool Company (the "Company") is
pleased to offer you the position as President and Chief Executive Officer of
the Company. This letter, when signed by you below, will constitute the
agreement between the Company and you concerning your terms of employment with
the Company.

The terms of your employment with the Company are as follows:

         A.       POSITION AND OFFICES. You will be employed as the President
                  and Chief Executive Officer of the Company and be appointed to
                  the Board of Directors of the Company for an initial term
                  expiring at the Company's Annual Meeting of Shareholders in
                  1998.

         B.       BASE ANNUAL SALARY. Your base annual salary through February
                  28, 1998 is $215,000, payable in accordance with the Company's
                  normal payment schedule for executive officers. The
                  Compensation Committee of the Board will review your base
                  annual salary in February 1998 for the purpose of considering
                  whether an increase, commencing March 1, 1998 is appropriate.

         C.       ANNUAL INCENTIVE BONUS. The Company will pay you a guaranteed
                  cash bonus of $100,000 in March 1998. In connection with your
                  annual salary review in February 1998, the Compensation
                  Committee will establish an annual incentive cash bonus
                  arrangement for you.

         D.       STOCK OPTIONS. The Compensation Committee will grant you
                  nonqualified stock options to purchase a total of 75,000
                  Common Shares of the Company at an option exercise price equal
                  to the average of the high and low prices of the Common Shares
                  on


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Richard E. Clemens
February 13, 1997
Page 2


                  the New York Stock Exchange for the last business day
                  immediately preceding the date you sign this letter agreement.
                  Such options would become exercisable as follows:

                  1.       Options to purchase 25,000 shares become exercisable
                           on the day immediately following any consecutive
                           10-day trading period during which the closing price
                           of the Common Shares on each trading day during the
                           period was $15 per share or more;

                  2.       Options to purchase an additional 25,000 shares
                           become exercisable on the day immediately following
                           any consecutive 10-day trading period during which
                           the closing price of the Common Shares on each
                           trading day during the period was $18 per share or
                           more; and

                  3.       Options to purchase an additional 25,000 shares
                           become exercisable on the day immediately following
                           any consecutive 10-day trading period during which
                           the closing price of the Common Shares on each
                           trading day during the period was $20 per share or
                           more.

                  In addition, on March 1, 2003 or the date there is a Change of
                  Control of the Company (as defined below), any of such options
                  that were not then exercisable would automatically become
                  exercisable. The options, if not previously exercised, would
                  expire the earlier of 30 days after your cessation of
                  employment with the Company or 10 years after the date of
                  grant. The option price, as well as any income taxes
                  associated with the exercise of the option, would be payable
                  in cash or by delivery of any unrestricted Common Shares of
                  the Company owned by you at the time of exercise.

                  In future years, you would be eligible for grants of options
                  under the Company's 1994 Employees Stock Option Plan.

                  "Change of Control" means the lease, sale, or other
                  disposition of all or substantially all of the assets of the
                  Company to other corporations, firms, or individuals or of a
                  merger, consolidation, combination [as defined in Section


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Richard E. Clemens
February 13, 1997
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                  1701.01(Q) of the Ohio Revised Code], or majority share
                  acquisition [as defined in Section 1701.01(R) of the Ohio
                  Revised Code] involving the Company and as a result of which
                  the holders of shares of the Company prior to the transaction
                  would become, by reason of the transaction, the holders of
                  such number of shares of the surviving or acquiring
                  corporation as entitle them to exercise less than one-third of
                  the voting power of the surviving or acquiring corporation in
                  the election of directors.


         E.       RESTRICTED SHARES.  You would also be issued, on
                  the same date you are granted options, 17,000
                  Common Shares of the Company as a "restricted
                  share award."  Such shares would vest as follows:
                  8,500 shares on March 1, 1998 if you were
                  employed by the Company on such date and an
                  additional 8,500 shares on March 1, 1999 if you
                  are employed by the Company on such date.


         F.       RETIREMENT PLAN.  If you are employed by the
                  Company on March 1, 1998, the Company will
                  establish an arrangement under which you would
                  receive an additional five years of credited
                  service for the purpose of calculating any
                  retirement benefit payable to you under the
                  Company's Retirement Plan applicable to executive
                  officers.

         G.       RELOCATION ARRANGEMENTS.  In connection with your
                  relocation to Ohio, the Company would provide the
                  following:

                  1.       A normal and customary allowance to cover your moving
                           expenses; and

                  2.       The Company would make available to you a loan equal
                           to the mortgage on your present residence. The loan
                           would bear interest at a rate equal to the Company's
                           cost of funds under its Credit Agreement with First
                           Chicago NBD, which is currently approximately 6.5%
                           per annum. The loan would be repayable in full,
                           together with accrued interest, on the earlier of the
                           sale of your present residence or March 1, 1998.



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Richard E. Clemens
February 13, 1997
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         H.       HEALTH AND LIFE INSURANCE. Officers of the Company are
                  provided health insurance coverage at no cost and life
                  insurance, which, in your case, would be approximately
                  $300,000. The Company will review the possibility of
                  purchasing additional insurance on your behalf, up to three
                  times your base annual salary.

If you have any questions concerning any of the foregoing, please feel free to
review the matter with me.

The Board of Directors is enthused about you joining the Company, and while
there will be challenges, they are confident that there are significant
opportunities to improve significantly the Company's performance and to enhance
shareholder value.

Very truly yours,

The Monarch Machine Tool Company


/s/ David E. Lundeen
------------------------------
David E. Lundeen
Acting President and CEO


ACCEPTED AND AGREED TO:
-----------------------


/s/Richard E. Clemens  Dated: February 14, 1997
-----------------------
Richard E. Clemens


cc:  William A. Enouen
     Joseph M. Rigot