PSC INC.
                               PSC SCANNING, INC.
                                 675 Basket Road
                             Webster, New York 14580

                                                         As of December 29, 2000


JOHN HANCOCK LIFE INSURANCE COMPANY (formerly
John Hancock Mutual Life Insurance Company)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts  02117

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN NATIONAL INCOME FUND, INC.
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Ft. Wayne, Indiana  46802

SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota  55401

THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
c/o Alliance Capital Management L.P.
1345 Avenue of the Americas, 37th Floor
New York, New York  10105

         Re:      Amendment No. 7 and Consent and Waiver Under Securities
                  Purchase Agreements

Ladies and Gentlemen:

     PSC INC., a New York corporation (the "Holding Company"), and PSC SCANNING,
INC.,  a  Delaware  corporation   (formerly  named  SpectraScan,   Inc.)  and  a
Wholly-Owned  Subsidiary of the Holding Company (the  "Operating  Company") (the
Holding Company and the Operating Company are sometimes collectively referred to
herein as the "Companies" and each as a "Company"),  jointly and severally agree
with you as follows:

         1.       Definitions; Background.
                  -----------------------

                  (a)  Reference  is  hereby  made to those  certain  Securities
         Purchase  Agreements  dated July 12,  1996,  as amended,  modified  and
         supplemented by (i) Amendment No. 1 to Securities  Purchase  Agreements
         dated  October  10,  1996,  (ii)  Amendment  No.  2 and  Waivers  Under
         Securities  Purchase  Agreements  dated  as  of  July  4,  1997,  (iii)
         Amendment No. 3 to Securities  Purchase  Agreements  and Warrants dated
         August 18,  1997,  (iv) Consent and Waiver  Under  Securities  Purchase
         Agreements  and Warrants  dated December 29, 1997, (v) Amendment No. 4,
         Consent and Waiver Under Securities  Purchase Agreements dated March 1,
         1999,  (vi)  Amendment  No. 5 and  Consent  Under  Securities  Purchase
         Agreements  dated  December 20, 1999,  (vii) Consent  Under  Securities
         Purchase  Agreements dated January 19, 2000, (viii) Amendment No. 6 and
         Consent and Waiver Under  Securities  Purchase  Agreements  dated as of
         March 31, 2000 and (ix) Waiver  Under  Securities  Purchase  Agreements
         dated as of November __, 2000 (as the same may be amended,  modified or
         supplemented from time to time, the "Securities Purchase  Agreements"),
         among the Holding Company, the Operating Company and each of you.

                  (b) Capitalized terms used herein without  definition have the
         meanings ascribed to them in the Securities Purchase Agreements.
<PAGE>

         2.       Waivers; Amendments; Acknowledgment.
                  -----------------------------------

                  (a) Waiver of Past Defaults. The Companies have requested that
         the holders of the Notes waive the Events of Default arising on account
         of the Companies'  failure to be in compliance as of September 30, 2000
         with the financial covenants set forth in section 14.7(a) (Fixed Charge
         Coverage Ratio),  section 14.7(b) (Adjusted  Consolidated  Indebtedness
         Ratio),  section  14.7(c)  (Senior Debt to Adjusted  EBITDA  Ratio) and
         section 14.7(d) (Net Worth) (the "Financial  Covenants").  On the basis
         of  the  information  provided  to the  holders  of  the  Notes  by the
         Companies  in  connection  herewith,  and  subject  to  the  terms  and
         conditions hereof,  such holders by their execution hereof agree to the
         same.

                  (b)  Amendments to Financial  Covenants for December 31, 2000.
         The Companies  have  requested  that the holders of the Notes waive the
         requirement that the Companies be in compliance as of December 31, 2000
         with the Financial Covenants.  On the basis of the information provided
         to the holders of the Notes by the  Companies in  connection  herewith,
         and subject to the terms and conditions  hereof,  such holders by their
         execution hereof agree to the same, provided that the Companies remain,
         and the Companies do hereby agree to remain, at all times in compliance
         with the terms of Amendment Ten to Bank  Agreement (as defined  below),
         including,  without  limitation,  the  financial  covenants  set  forth
         therein,  as the same may be  supplemented  from time to time.  A true,
         correct  and  complete  copy  of  Amendment  Ten to Bank  Agreement  is
         attached hereto as Exhibit 2(b).
<PAGE>

                  (c) Acknowledgment as to Superior Indebtedness. The holders of
         the Notes hereby acknowledge that obligations of the Companies incurred
         in connection with the F/X Facility  established  under (and as defined
         in) Amendment Ten to Bank  Agreement  are Superior  Indebtedness  under
         (and as defined in) section 10 of the  Securities  Purchase  Agreements
         subject to the  limitations  set forth in such  section  10,  including
         those set forth in the definition of the term "Superior Indebtedness".

         3. Amendment to the Notes to Defer Certain Interest  Payments.  Each of
the Notes is hereby  amended to provide that all  interest  accrued on the Notes
from and after  September  30,  2000 to April 1, 2001  shall be paid on April 1,
2001 (and no payments of interest on the Notes shall be due on December 31, 2000
and March 31, 2001), and thereafter  payments of interest due on the Notes shall
be payable on each March 31, June 30,  September 30 and December 31,  commencing
June 30, 2001.  Upon the request of any holder of Notes,  the Operating  Company
shall deliver to such holder new Notes in exchange for those held by such holder
to reflect the foregoing.  Exhibit 1(a)(i) to the Securities Purchase Agreements
is hereby amended to be in the form of Exhibit 3 attached hereto.

         4.       Conditions Precedent to Effectiveness.  The provisions of this
Letter Agreement shall be effective as of the date first specified above at such
time as each of the following conditions shall have been fulfilled:

                  (a) The  Companies  shall have paid in  immediately  available
         funds an advance to the holders of the Notes (for the professional fees
         of the holders of the Notes which the  Companies  are  obligated to pay
         under section 21 of the Securities Purchase Agreements) in an aggregate
         amount equal to $100,000 (the "Advance"), which amount shall be paid to
         the clients' funds account of Choate,  Hall & Stewart,  special counsel
         to  the  holders  of  the  Notes,  in  accordance  with  the  following
         instructions:

                   Bank:           Citizens Bank of Massachusetts
                   ABA#:           0115-0012-0
                   For Credit To:  Choate, Hall & Stewart Account #110781-249-3
                   Reference:      2003532-0002 (C. Glerum/B. Lee).

         The  parties  hereto  agree  that upon  payment  in cash in full of the
         Advance (which amount is not refundable  under any  circumstance),  the
         Companies  shall  no  longer  be  obligated  under  section  21 of  the
         Securities  Purchase  Agreements  to reimburse the holders of the Notes
         for  professional  fees  incurred  prior to April 1, 2001 in connection
         with the restructuring of the credit facility  established  pursuant to
         the Securities Purchase Agreements,  but in no other respect are any of
         the  terms or  provisions  of  section  21 of the  Securities  Purchase
         Agreements modified hereby.

                  (b) The Companies shall have delivered an executed copy of the
         Tenth  Amendment  and  Waiver  dated  as  of  December  29,  2000  (the
         "Amendment  Ten to Bank  Agreement"),  among the Holding  Company,  the
         Operating  Company,  the financial  institutions  party thereto,  Fleet
         National Bank (formerly  known as Fleet Bank), as Initial Issuing Bank,
         and Fleet National Bank, as administrative agent, which must be in form
         and substance satisfactory to you.
<PAGE>

         5. Additional  Reports,  etc. The Companies  hereby agree to furnish to
you the same  reports and  information  as they  furnish to the Banks and at the
same time, including, without limitation, all of the same prepared by Policano &
Manzo and Raymond  James & Associates  and all of the same required by the terms
of Amendment Ten to Bank Agreement.  The Companies do further agree to afford to
the   holders   of  the  Notes  and  their   counsel   and  other   professional
representatives  the same  access to the  properties,  assets,  books,  records,
employees  and  agents  of the  Companies  and their  Subsidiaries  and the same
cooperation as is afforded to the Banks,  pursuant to the terms of Amendment Ten
to Bank Agreement or otherwise.

         6.       Ratification, etc.

                  (a) The Companies  represent  and warrant  that,  after giving
         effect to the provisions of this Letter Agreement,  no Default or Event
         of Default exists.

                  (b) The  Companies  each  ratify and  confirm  the  Securities
         Purchase  Agreements and each of the other Operative Documents to which
         each is a party  and  agree  that each  such  agreement,  document  and
         instrument is in full force and effect, that its obligations thereunder
         and under  this  Letter  Agreement  are its  legal,  valid and  binding
         obligations enforceable against it in accordance with the terms thereof
         and  hereof and that it has no  defense,  whether  legal or  equitable,
         setoff  or   counterclaim  to  the  payment  and  performance  of  such
         obligations.

                  (c) The Companies  agree that (i) if any default shall be made
         in  the  performance  or  observance  of  any  covenant,  agreement  or
         condition  contained  in this  Letter  Agreement  or in any  agreement,
         document  or  instrument  executed in  connection  herewith or pursuant
         hereto or (ii) if any  representation or warranty made by the Companies
         herein or therein  shall prove to have been false or  incorrect  on the
         date as of which made, the same shall  constitute an immediate Event of
         Default  under  the  Securities   Purchase  Agreements  and  the  other
         Operative  Documents  and, in such event,  you and each other holder of
         any of the Notes  shall have all rights and  remedies  provided  by law
         and/or  provided or referred to in the Securities  Purchase  Agreements
         and the other  Operative  Documents.  The Companies  further agree that
         this Letter  Agreement  is an  Operative  Document  and all  references
         thereto in the Securities  Purchase  Agreements and in any other of the
         other Operative Documents shall include this Letter Agreement.

         7.  Payment of  Special  Waiver  Fee.  The  Companies  shall pay to the
holders of the Notes in cash on April 1, 2001 a  non-refundable  special  waiver
fee in the aggregate  amount of $75,000,  which amount shall be shared among the
holders of the Notes in proportion to the respective  aggregate principal amount
of the Notes held by each holder.

         8. Governing Law. This Letter Agreement,  including the validity hereof
and the rights and obligations of the parties  hereunder,  shall be construed in
accordance  with and governed by the domestic  substantive  laws of the State of
New  York  without  giving  effect  to any  choice  of law or  conflicts  of law
provision or rule that would cause the  application of the domestic  substantive
laws of any other jurisdiction.
<PAGE>

         9.  Miscellaneous.  The  headings  in  this  Letter  Agreement  are for
purposes of reference  only and shall not limit or otherwise  affect the meaning
hereof.  This Letter Agreement  embodies the entire agreement and  understanding
among the parties hereto and supersedes all prior agreements and  understandings
relating to the subject  matter  hereof.  In case any  provision  in this Letter
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  This  Letter  Agreement  may be  executed  in any  number of
counterparts  and by the parties  hereto on separate  counterparts  but all such
counterparts shall together constitute but one and the same instrument.

            [The remainder of this page is intentionally left blank.]
<PAGE>

         If you are in  agreement  with the  foregoing,  please sign the form of
agreement  on  the  accompanying   counterpart  hereof,  whereupon  this  Letter
Agreement shall become a binding  agreement under seal among the parties hereto.
Please then return one of such counterparts to the Companies.

                               Very truly yours,

                               PSC INC.



                               By: __________________________________
                                            (Title)


                               PSC SCANNING, INC.



                               By: __________________________________
                                            (Title)


         Each of the undersigned (a)  acknowledges  and assents to the terms and
provisions of the foregoing  Letter Agreement and (b) ratifies and confirms each
of the  Operative  Documents  to which it is a party and  agrees  that each such
Operative Document is in full force and effect, that its obligations  thereunder
are  its  legal,  valid  and  binding  obligations  enforceable  against  it  in
accordance  with the terms thereof and that it has no defense,  whether legal or
equitable,  setoff or  counterclaim,  to the  payment  and  performance  of such
obligations.

                               INSTAREAD CORPORATION


                               By: __________________________________
                                            (Title)


                               PSC AUTOMATION, INC. (formerly
                                  named Lazerdata Corporation)


                               By: __________________________________
                                             (Title)


<PAGE>


                               GEO LABS, INC.


                               By: __________________________________
                                              (Title)


                               GAP TECHNOLOGIES, INC.


                               By: __________________________________
                                               (Title)


                               PERCON INCORPORATED


                               By: __________________________________
                                               (Title)


            [The remainder of this page is intentionally left blank.]


<PAGE>


The foregoing is hereby accepted and agreed to:

JOHN HANCOCK LIFE INSURANCE COMPANY
(formerly John Hancock Mutual
Life Insurance    Company)

By:  _____________________________
                   (Title)



<PAGE>


The foregoing is hereby accepted and agreed to:

JOHN HANCOCK VARIABLE LIFE
   INSURANCE COMPANY


By:  _______________________________
                   (Title)




<PAGE>


The foregoing is hereby accepted and agreed to:

THE LINCOLN NATIONAL LIFE
   INSURANCE COMPANY

By:    Lincoln Investment Management, Inc.
       Its Attorney-in-Fact


       By:  ___________________________
                    (Title)




<PAGE>


The foregoing is hereby accepted and agreed to:

LINCOLN NATIONAL INCOME FUND, INC.


By:  _______________________________
                      (Title)




<PAGE>


The foregoing is hereby accepted and agreed to:

SECURITY-CONNECTICUT LIFE
   INSURANCE COMPANY


By:  _______________________________
                     (Title)


<PAGE>


The foregoing is hereby accepted and agreed to:

THE EQUITABLE LIFE ASSURANCE
   SOCIETY OF THE UNITED STATES


By:  _______________________________
                      (Title)


<PAGE>


                                                                    Exhibit 2(b)

                         Amendment Ten to Bank Agreement


<PAGE>


                                                                    Exhibit 3

                                  Form of Note