FIRST AMENDMENT
                                       TO
                                    AGREEMENT


         THIS  AGREEMENT  (the "First  Amendment") is made as of the 11th day of
December,  1998 by PSC INC., a New York corporation ("PSC" or the "Company") and
ROBERT S. EHRLICH ("Ehrlich").

         WHEREAS,  PSC and Ehrlich  entered into a certain  agreement on June 2,
         1998 (the  "Agreement");  and WHEREAS,  the parties  desire to amend in
         certain respects said Agreement.  NOW,  THEREFORE,  in consideration of
         the premises and mutual covenants herein  contained,  the parties agree
         as follows: 1. All of the terms used in this First Amendment shall have
         the meanings defined in the Agreement. 2. Section 4 of the Agreement is
         deleted in its  entirety  and  replaced  by a new Section 4, which will
         read as follows:

                    "4. Restricted  Stock.  Pursuant to the Company's 1994 Stock
                  Option  Plan,  on March 25,  1998 PSC awarded  Ehrlich  17,500
                  restricted  Common  Shares of the Company,  upon the terms and
                  conditions  and subject to the  restrictions  set forth in the
                  Restricted Stock Award Agreement attached hereto as Exhibit A.
                  If Ehrlich is then  Chairman of the Board of  Directors of the
                  Company,  on each of March 25,  1999 and March 25,  2000,  PSC
                  will award Ehrlich 17,500 restricted Common Shares pursuant to
                  a Restricted Stock Award Agreement  similar in form to Exhibit
                  A, as modified to reflect  changes in dates and stock  prices.
                  Notwithstanding the foregoing  sentence,  if there is a Change
                  in Control (as  hereinafter  defined),  and if Ehrlich becomes
                  entitled  to  receive   Severance   Benefits  (as  hereinafter
                  defined),  Ehrlich will be immediately entitled to receive the
                  Common Shares which  otherwise  would have been awarded to him
                  on March 25, 1999 and/or on March 25,  2000,  fully vested and
                  free of any and all restrictions."


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<PAGE>



         3. There is added to the Agreement a new Section 14, which will read as
follows:
                  "14.  Change in Control
                           a.  Severance  Payment.  If  following  a  Change  in
                  Control  (as  hereinafter  defined)  of the  Company,  Ehrlich
                  ceases to be Chairman of the Board of Directors of the Company
                  at any  time  prior  to the  expiration  of the  Term  of this
                  Agreement, for any reason other than death or disability,  the
                  Company  will  pay  Ehrlich  over  a  period  of  three  years
                  following such  termination of services an amount equal to the
                  product of Ehrlich's  compensation  for services at the annual
                  rate than in effect  multiplied  by 2.9.  Such amount shall be
                  payable in bi-weekly installments.  In addition,  Ehrlich will
                  be immediately  vested in any restricted stock or option plans
                  or agreements then in effect.

                           b.  Limitations.  Notwithstanding  anything  in  this
                  Section to the contrary,  the maximum amount of cash and other
                  benefits  payable  (whether on a current or deferred basis and
                  whether or not  includible  in income for income tax purposes)
                  under this Section (the "Severance Benefits") shall be limited
                  to the extent  necessary to avoid  causing any portion of such
                  Severance  Benefits,  or any other  payment  in the  nature of
                  compensation  to the Executive,  to be treated as a "parachute
                  payment"  within  the  meaning of  Section  280G(b)(2)  of the
                  Internal  Revenue  Code of 1986,  as amended.  Any  adjustment
                  required to satisfy the limitation  described in the preceding
                  sentence  shall be  accomplished  first by  reducing  any cash
                  payments that would  otherwise be made to Ehrlich and then, if
                  further reductions are necessary,  by adjusting other benefits
                  as determined by the Company.


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                           c.  Definition  of Change in  Control.  A "Change  in
                  Control" shall be deemed to have occurred (i) on the date that
                  any person or group deemed a person under Sections 3(a)(9) and
                  13(d)(3) of the  Securities  Exchange Act of 1934,  other than
                  the Company,  in a transaction or series of transactions,  has
                  become the  beneficial  owner,  directly or  indirectly  (with
                  beneficial  ownership as determined as provided in Rule 13d-3,
                  or any  successor  rule under such Act), of 30% or more of the
                  outstanding  voting securities of the Company;  or (ii) on the
                  date on which one third or more of the members of the Board of
                  Directors   shall   consist  of  persons  other  than  Current
                  Directors (for these purposes, a "Current Director" shall mean
                  any member of the Board of Directors  elected at or continuing
                  in office after, the 1998 Annual Meeting of Shareholders,  any
                  successor  of a Current  Director  who has been  approved by a
                  majority of the Current  Directors then on the Board,  and any
                  other  person  who has  been  approved  by a  majority  of the
                  Current  Directors then on the Board); or (iii) on the date of
                  approval  of (x) the merger or  consolidation  of the  Company
                  with  another   corporation  where  the  shareholders  of  the
                  Company,  immediately  prior to the  merger or  consolidation,
                  would not beneficially  own,  immediately  after the merger or
                  consolidation,  shares  entitling such  shareholders to 50% or
                  more of all votes (without  consideration of the rights of any
                  class of stock to elect directors by a separate class vote) to
                  which all shareholders of the corporation would be entitled in
                  the election of directors or where the members of the Board of
                  Directors of the Company,  immediately  prior to the merger or
                  consolidation,  would  not  immediately  after  the  merger or
                  consolidation, constitute a majority of the Board of Directors
                  of the corporation issuing cash or securities in the merger or
                  consolidation  or (y) on the date of  approval  of the sale or
                  other  disposition of all or  substantially  all the assets of
                  the Company."


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         4. Except as modified by this First  Amendment,  the  Agreement has not
heretofore been amended or cancelled, and remains in full and effect.

         IN WITNESS  WHEREOF,  the parties  have caused this First  Amendment to
be executed as of the day and year first above written. PSC Inc.


                           By: /s/ Robert C. Strandberg
                               ------------------------     
                               Robert C. Strandberg
                               President and Chief Executive Officer


                               /s/ Robert S. Ehrlich
                               ------------------------
                               Robert S. Ehrlich