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                                                                    EXHIBIT 10.3
May 7, 1996



Mr. Robert J. Siewert
3233 Deerpath Way
Sidney, OH 45365

Dear Bob:

This letter confirms that you ceased to be President, Chief Executive Officer
and a Director of The Monarch Machine Tool Company (the "Company") effective at
the beginning of business on May 13, 1996.

This letter also constitutes the entire agreement (the "Agreement") between you
and the Company concerning your change in status with the Company. In
consideration of your agreements stated herein and for so long as you adhere to
your commitments in this Agreement, the Company will provide the following:

         A.       SALARY THROUGH MAY 22, 1998
                  ---------------------------

                  (1) SALARY. You will continue as a employee of the Company
         until the close of business on Friday, May 22, 1998 ("Termination
         Date"). Your salary will be continued at a rate of $16,670 per month,
         payable monthly, until April 30, 1997; for the period from May 1, 1997
         until your last day of employment on May 22, 1998, your salary will be
         at a rate of $6,335 per month, payable monthly.

         B.       BENEFITS
                  --------

                  (1) GROUP HEALTH INSURANCE. Until your Termination Date, the
         Company will, at its expense, continue your and your spouse's
         participation in The Monarch Machine Tool Company Medical Benefits Plan
         (the "Health Plan"). After your Termination Date, the Company will
         continue coverage under the Health Plan in accordance with the
         provisions of the Health Plan relating to retired officers.

                  (2) BASIC LIFE INSURANCE. The Company will continue to provide
         you a life insurance benefit under the Company's plan for officers
         until your Termination Date. After your Termination Date, you will be
         treated as a retired officer under the plan.

                  (3) QUALIFIED PENSION PLAN FOR SALARIED EMPLOYEES. As an
         employee of the Company, you will continue to accrue service under the
         Qualified Pension Plan until your Termination Date. After your
         Termination Date and when you commence pay status under the Pension
         Plan, the Company will pay you for a ten-year period certain an
         additional monthly amount so that your monthly retirement benefit
         during such ten-year period is not actuarially reduced because you went
         into pay status under the Pension Plan prior to reaching age 65.


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Mr. Robert J. Siewert
May 7, 1996
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         C.       FURTHER AGREEMENTS
                  ------------------

                  In consideration of the foregoing, you agree to the following:

                  (1) Your employment with the Company shall cease at the close
         of business on May 22, 1998. This Agreement evidences your resignation,
         effective May 13, 1996, as an officer and director of the Company and
         as of an officer or director of any of its subsidiaries. You further
         agree that unless David E. Lundeen otherwise agrees, (a) you shall
         immediately cease using any Company property, including Company
         offices, computer equipment and software, credit cards and secretarial
         services and you will not seek access to any Company facilities and (b)
         you shall promptly return to the possession of the Company all property
         of the Company in your control or possession, including but not limited
         to, security passes, keys, computer equipment and software, accounting
         records, customer and supplier information, business plans, drawings,
         designs, and any other documents relating to the Company and its
         business which you obtained as a result of employment with the Company
         and any copies of any of the foregoing.

                  (2) You agree that until your Termination Date, you will
         consult and advise the Company on any matters related to the Company's
         business, including product development and customer relations, that
         the President of the Company or the Board of Directors of the Company
         deems appropriate and beneficial to the Company. It is understood that
         these consulting and advisory services are "on call" services and will
         only be requested of you at reasonable times and will not interfere
         with you devoting yourself to other matters on a full time basis. The
         forgoing services shall constitute the sole services that are expected
         of you between now and your Termination Date.

                  (3) For purposes of this Agreement, you agree that the
         following words shall have the following meanings:

                           (a) "Confidential Information" means and includes,
                  but is not limited to, matters of a technical nature such as
                  scientific, trade and engineering secrets, know-how, designs,
                  plans, formulae, processes, inventions, and research and
                  development projects relating to the designing, engineering
                  and manufacturing of the products and planned products of the
                  Company, and matters of a business nature, such as cost and
                  pricing data, purchasing, marketing and sales policies and
                  procedures, market analysis, customer lists and strategies and
                  plans for future growth and development, all of which are of a
                  confidential and proprietary nature to the Company, except for
                  any such information which is or becomes known in the public
                  domain.



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Mr. Robert J. Siewert
May 7, 1996
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                           (b) "Competition with the Company" means and includes
                  competition with the Company, any subsidiary or affiliate of
                  the Company, or any of their successors or assigns, or the
                  business of any of them and a business or enterprise shall be
                  in "Competition with the Company" if it is engaged, in any
                  state of the United States or in any foreign country in which
                  the Company's products are then marketed in developing,
                  designing, engineering, manufacturing, assembling,
                  distributing, selling or servicing manual or computer
                  numerically controlled (CNC) turning machines, vertical
                  machining centers, custom metal processing equipment, paper
                  converting machinery, or robotic workpiece handling equipment
                  or replacement parts for any of the foregoing.

                  (3) You agree that you shall not at any time disclose any
         Confidential Information unless you are required by law to do so. You
         agree that until May 22, 1998, you will not, without the prior written
         consent of the Company, directly or indirectly, individually or as an
         agent, officer, director, employee or consultant, shareholder or
         partner, engage in any business or enterprise which is in Competition
         with the Company. In the event you knowingly violate the provisions of
         this section or any other section of this Agreement, the Company may
         terminate all payments and benefits that are to be made or provided to
         you under this Agreement and seek such other and further relief as the
         Company may be entitled to under law. This paragraph shall not prevent
         you from (i) being employed by or serving as an officer of, or
         consultant to any subsidiary or division of a business or enterprise in
         Competition with the Company if that subsidiary or division is not
         itself in Competition with the Company; or (ii) purchasing and holding
         for investment less than 2% of the shares of any corporation whose
         shares are regularly traded either on a national securities exchange or
         in the over-the-counter market.

                  (4) For and in consideration of the payments and benefits
         provided by this Agreement, you, on behalf of yourself, your heirs,
         administrators, assigns, and agents, fully settle, release and forever
         discharge the Company, its subsidiaries and its and their present and
         former officers, directors, agents, and employees of and from any and
         all claims, demands, liabilities, costs, damages, actions and causes of
         action arising out of or related to your employment, or your
         termination from employment with the Company, including, but not
         limited to, any claims which may be or may have been brought for age
         discrimination under the federal Age Discrimination in Employment Act,
         or any state or local law relating to age discrimination, or any other
         type of employment discrimination, breach of express or implied
         contract, promissory estoppel, intentional tort, or personal injury.

                  (5) This Agreement does not constitute an admission by the
         Company that it has violated any contract, law or regulation or in any
         way infringed your rights or privileges.


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Mr. Robert J. Siewert
May 7, 1996
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                  (6) You also agree that the benefits and payments provided by
         this Agreement are in lieu of, and replace, any severance benefits for
         which you might have claimed eligibility, or entitlement, under Company
         policy or practice.

         D.       GENERAL
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                  (1) You agree that the Company's remedy at law for any breach
         of your obligations under Paragraph (C)(3) of this Agreement would be
         inadequate and you agree and consent that temporary and permanent
         injunctive relief may be granted in any proceeding brought to enforce
         Paragraph (C)(3) of this Agreement without the necessity of proof of
         actual damage.

                  (2) This Agreement shall be binding upon, shall be assignable
         by, and shall inure to the benefit of the Company, its legal
         representatives, successors and assigns. This Agreement is personal to
         you and may not be assigned by you except to your estate.

                  (3) The provisions of this Agreement are divisible. If any
         provision shall be deemed invalid or unenforceable, it shall not affect
         the applicability or validity of any other provision of this Agreement,
         but rather such provision shall be amended to the extent necessary to
         render it valid and enforceable.

                  (4) This Agreement shall be construed according to, and the
         legal relations between the parties shall be governed by, the laws of
         the State of Ohio as applicable to agreements executed and fully
         performed in the State of Ohio.

         E.       ACKNOWLEDGMENT
                  --------------

                  In connection with your execution of this Agreement, you
         acknowledge the following:

                  (1) that you are waiving all rights or claims that you have or
         may have under the Federal Age Discrimination in Employment Act, and
         any rights or claims that you have or may have under other federal,
         state or local laws with regard to age and employment discrimination;

                  (2) that you have been advised by the Company to consult with
         an attorney prior to executing this Agreement;

                  (3) that you have a period of 21 days after receiving a copy
         of this Agreement in which to consider this Agreement; and

                  (4) that for a period of seven days following your execution
         of this Agreement, you may revoke this Agreement, and that this
         Agreement shall not


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Mr. Robert J. Siewert
May 7, 1996
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         become effective and enforceable until that seven-day revocation period
         has expired.

         An additional signed copy of this Agreement is enclosed. If you
understand, accept and agree to the terms and provisions set forth herein,
please date and sign this Agreement below and return the signed Agreement to the
Company. The additional copy is for your records. If the Company does not
receive this Agreement signed by you before June 28, 1996, this letter is of no
force and effect.

                                           Sincerely,

                                           The Monarch Machine Tool Company

                                           By:/s/William A. Enouen
                                              ----------------------------------
                                              William A. Enouen
                                              Pursuant to Authority Granted
                                              by Resolution of the Board of
                                              Directors adopted May 7, 1996

Understood, Accepted and Agreed to:

/s/Robert J. Siewert                                       5/96
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Robert J. Siewert                                          Date