PSC Inc.

                           Director Compensation Plan

Article I         Purpose of the Plan

1.1 Purpose of Plan. PSC Inc. (the "Company")  adopts the PSC Inc.  Compensation
Plan for  Non-Employee  Directors  (the "Plan") to provide for payment either in
cash or in shares of the Company's Common Stock,  $.01 par value  ("Stock"),  of
the  compensation  paid for the services of members of the Board of directors of
the Company who are not  employees  of the Company or any of its  affiliates  or
subsidiaries ("Non-Employee  Directors").  The Plan also allows the Non-Employee
Directors to defer all or a portion of the  compensation  for their  services as
directors.  The Plan is intended to provide Non-Employee Directors with a larger
equity  interest in the Company,  to enhance the  identity of interests  between
Non-Employee  Directors and the  shareholders of the Company,  and to assist the
Company in  attracting  and  retaining  well-qualified  individuals  to serve as
Non-Employee Directors.

Article II        Eligibility and Participation

2.1 Eligibility and Participation. Only Non-Employee Directors shall be eligible
to  participate  in the Plan.  An eligible Plan  participant  may be referred to
herein as "Participant".

Article III       Director Compensation Elections

3.1 Compensation Payable in Cash or Stock. Each Non-Employee  Director may elect
to have  (a)  his or her  director  retainer  fee  that  is  paid  in  quarterly
installments,  or in any other manner  (determined  without  regard to the Plan)
(the  "Retainer"),  (b)  his or her  fees  for  attendance  at  meetings  of the
Company's  Board of Directors  and/or  committees  thereof  (determined  without
regard to the Plan) ("Meeting Fees"), and (c) any other compensation paid to him
or her for  services  as a  director  (determined  without  regard  to the Plan)
("Other Compensation") payable in cash or in Stock.

3.2  Deferral of  Compensation.  Each  Non-Employee  Director may elect to defer
receipt of all or a specified  portion of the Retainer,  the Meeting Fees or the
Other Compensation otherwise payable to him or her. If the amount to be deferred
would have been payable in cash pursuant to Section 3.1, the Company will credit
a Deferral Account maintained for the Non-Employee  Director as provided in this
Plan with an amount that would  otherwise have been payable to the  Non-Employee
Director in cash. If the amount to be deferred  would have been payable in Stock
pursuant to Section 3.1, the Company will credit units ("Stock Units") to a Unit
Account maintained for the Non-Employee Director as provided in this Plan.

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For purposes of the Plan,  Deferral  Account  means an account  maintained  in a
ledger for a Non-Employee Director to which cash equivalent amounts allocable to
the Non-Employee  Director under this Plan are credited and a Unit Account means
the account  maintained in a ledger for a  Non-Employee  Director to which Stock
Units  allocable to the  Non-Employee  Director under this Plan are credited.  A
Stock Unit means a credit in a Non-Employee  Director Unit Account  representing
one share of Stock.

3.3  Elections.  An election  under Sections 3.1 and 3.2 must be made in writing
and  delivered to the Company  prior to the start of the calendar  year in which
the Retainer, the Meeting Fees or the Other Compensation would otherwise be paid
(but for the deferral  election) and such election will be  irrevocable  for the
affected  calendar year (the "Affected Year"). To participate in the Plan during
the calendar year in which the Plan becomes effective, the Non-Employee Director
must make an election  under  Sections  3.1 and 3.2 for services to be performed
subsequent to the election  within 30 days after the Effective  Date (as defined
in Section 9.1) and such election will be  irrevocable  for the remainder of the
Affected  Year.  To  participate  in the Plan during the first  calendar year in
which a Non-Employee  Director  becomes eligible to participate in the Plan, the
new  Non-Employee  Director must make an election under Sections 3.1 and 3.2 for
services to be performed  subsequent  to the  election  within 30 days after the
date he or she becomes  eligible and such election will be  irrevocable  for the
remainder  of the  Affected  Year.  Each  election  shall remain in effect until
revoked in writing,  and any such revocation  shall become  effective no earlier
than the first day of the first calendar year  commencing  after such revocation
is received by the Company. If a Non-Employee Director does not file an election
form by the specified  date, he or she will be deemed to have elected to receive
all of the Retainer, the Meeting Fees and the Other Compensation in cash.

3.4 Payment in Stock.  If a  Non-Employee  Director  elects to receive  Stock in
payment  of  all  or  part  of  his or her  Retainer,  Meeting  Fees  and  Other
Compensation,  the  number  of  shares  of Stock to be  issued  on the date that
payment would  otherwise have been made in cash shall equal the cash amount that
would have been paid  divided by the Fair Market  Value of one share of Stock on
the date on which such cash amount would have been paid.

For  purposes of the Plan,  the Fair Market  Value of Stock on any  business day
means (a) if the primary market for the Stock is a national securities exchange,
the Nasdaq National Market,  or other market quotation system in which last sale
transactions  are reported on a  contemporaneous  basis,  the last reported sale
price of the Stock on such exchange or in such quotation system for that day or,
if there shall not have been a sale on such  exchange or reported  through  such
system on such trading day, the closing or last bid  quotation  therefor on such
exchange or quotation  system on such trading day; (b) if the primary market for
the Stock is not such an exchange or quotation market in which  transactions are
contemporaneously   reported,   the  closing  or  last  bid   quotation  in  the
over-the-counter  market  on  such  trading  day as  reported  by  the  National
Association  of Securities  Dealers  through  NASDAQ,  its automated  system for
reporting quotations,  or its successor, or such other generally accepted source
of publicly reported bid quotations as the Company may reasonably designate.  To
the extent that the  application  of any formula  described  in this Section 3.4
does not  result in a whole  number of shares  of  Stock,  the  result  shall be
rounded upwards to the next whole number such that no fractional shares of Stock
shall be issued under the Plan.
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3.5 Crediting  Cash to a Deferral  Account.  If a Non-Employee  Director  defers
receipt  of  any  portion  of the  Retainer,  the  Meeting  Fees  or  the  Other
Compensation  by having an amount credited to a Deferral  Account,  then on each
date that payment  would have been made in cash,  the Company will credit to the
Non-Employee Director's Deferral Account an amount equal to the dollar amount of
the Retainer,  the Meeting Fees or the Other Compensation  deferred. On the last
day of each calendar year the Company will also credit the Deferral Account with
interest,  calculated at the Interest Rate, on the aggregate  amount credited to
the Deferral Account.

For purposes of the Plan "Interest Rate" means the annual rate at which interest
is  deemed to  accrue  on the  amounts  credited  in a  Deferral  Account  for a
Non-Employee  Director.  The annual rate shall be the average interest rate paid
by the Company during the year to its senior lender.

3.6      Deferral Account Fully Vested.  All sums credited to a Deferral Account
shall at all times be fully vested.

3.7 Crediting  Stock Units to Unit Accounts.  If a Non-Employee  Director defers
receipt  of  any  portion  of the  Retainer,  the  Meeting  Fees  or  the  Other
Compensation by having Stock Units credited to a Unit Account, then on each date
that  payment  would  have been made in cash,  the  Company  will  credit to the
Non-Employee Director's Unit Account a certain number of Stock Units. The number
of Stock  Units  credited to a Unit  Account  with  respect to any  Non-Employee
Director shall equal the amount deferred divided by the Fair Market Value of one
share of Stock on the date on which  such cash  amount  would have been paid but
for the deferral election pursuant to Section 3.3.

3.8 Fully Vested Stock Units.  All Stock Units credited to a Participant's  Unit
Account  pursuant to this  Article  III shall be at all times  fully  vested and
nonforfeitable.

3.9  Distribution of the Amounts in a Deferral  Account.  After the Distribution
Date, as hereinafter defined, for a Non-Employee  Director, the Company will pay
the  Non-Employee  Director cash equal to the amount with which the Non-Employee
Director's Deferral Account is credited.  The Non-Employee Director may elect to
receive  all of the cash at one time or in any number of  installments  up to 10
annual installments as described below. If the Non-Employee Director has elected
to receive  all of the cash at one time,  the  Company  will pay the cash to the
Non-Employee Director as soon as practicable after the Distribution Date.
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If the Non-Employee Director has elected to be paid the cash in installments,  a
pro  rata  portion  of the  amount  credited  to  the  Deferral  Account  on the
Distribution  Date will be paid in each  installment,  along with the additional
amount credited to the Deferral  Account as interest since the last  installment
was paid. The Company will pay to the Non-Employee  Director the cash to be paid
in the first installment as soon as practicable after the Distribution Date. The
remaining installments of cash shall be paid on or about each anniversary of the
Director's Distribution Date.

For purposes of this Plan, the "Distribution  Date" means any date subsequent to
the Affected Year specified by a Non-Employee Director on an election form filed
pursuant  to  Section  3.3 and,  in any case,  the date on which a  Non-Employee
Director (i) ceases to be a director of the Company or (ii) becomes  employed by
the Company or an affiliate, or (iii) dies.

3.10 Distribution of the Amounts in a Unit Account.  After the Distribution Date
for a Non-Employee Director, the Company will issue to the Non-Employee Director
a certificate  for that number of shares equal to the number of Units with which
the Non-Employee  Director's Unit Account is credited. The Non-Employee Director
may  elect  to  receive  all of the  shares  of Stock at one time or in up to 10
annual installments as described below. If the Non-Employee Director has elected
to receive all of the shares of Stock at one time,  the  Company  will issue the
shares of Stock as soon as practicable after the Distribution Date.

If the  Non-Employee  Director  has  elected to  receive  the shares of Stock in
installments,  a pro rata  number  of shares  of Stock  will be issued  for each
installment  plus additional  shares of Stock equal to the Units credited to the
Unit Account  respecting  dividends paid on the Stock since the last installment
was made.  The Company  will issue the first  installment  of shares of Stock as
soon as practicable  after the Non-Employee  Director's  Distribution  Date. The
remaining  installments  of  shares of Stock  will be  issued  on or about  each
anniversary of the Non-Employee Director's Distribution Date.

3.11  Conversion  of  Accounts.  At any time prior to the  Distribution  Date, a
Non-Employee  Director who has a Deferral Account may convert all or any portion
of the Deferral  Account into Units  credited to a Unit  Account.  The number of
Units to be  credited  to the  Non-Employee  Director's  Unit  Account  upon the
conversion  shall equal (1) the amount credited to the  Non-Employee  Director's
Deferral  Account so converted  divided by (2) the Fair Market Value on the date
of the Non-Employee Director's election to convert.
<PAGE>

At any time prior to the  Distribution  Date, a Non-Employee  Director who has a
Unit  Account may convert all or any portion of the Unit Account into a Deferral
Account. The cash amount to be credited to the Non-Employee  Director's Deferral
Account upon the conversion  shall equal (1) the number of Units credited to his
or her Unit Account so converted  multiplied by (2) the Fair Market Value on the
date of the Non-Employee Director's election to convert.

Any  election to convert  must be made on a form  prescribed  by the Company and
filed with its Secretary. The conversion of a Unit Account or a Deferral Account
shall be deemed to occur on the date of the Director's election.

Article IV - Stock

4.1 Authorized Stock. The aggregate number of shares of Stock that may be issued
under the Plan shall not exceed 50,000  shares,  unless such number of shares is
adjusted  as  provided  in  Article V of the Plan.  Such  shares of Stock may be
authorized but unissued  shares,  treasury shares or shares acquired in the open
market for the account of the Participant.

4.2 Fractional Shares.  No fractional shares of Stock shall be issued under the 
Plan under any circumstances.

Article V - Adjustment upon Changes in Capitalization

5.1 Adjustment upon Changes in Capitalization. In the event of a stock dividend,
stock split or combination, reclassification,  recapitalization or other capital
adjustment of shares of Stock,  the number of shares of Stock that may be issued
pursuant to Stock Units and the number of Stock Units  credited to Unit Accounts
shall be appropriately  adjusted by the Board of Directors of the Company, whose
determination  shall be final,  binding on the Company and the  Participants and
conclusive.

5.2 No Effect on Rights of  Company.  The grant of Stock  Units  pursuant to the
Plan  shall not  affect in any way the  right or power of the  Company  to issue
additional  Stock  or other  securities,  make  adjustments,  reclassifications,
reorganizations  or  other  changes  in  its  corporate,   capital  or  business
structure,  to  participate in a merger,  consolidation  or share exchange or to
transfer its assets or dissolve or liquidate.

Article VI - Termination or Amendment of the Plan

6.1 In General. The Board of Directors of the Company may at any time terminate,
suspend or amend the Plan.  An amendment or the  termination  of this Plan shall
not adversely  affect the right of a  Non-Employee  Director or  Beneficiary  to
receive  shares of Stock  issuable or cash payable at the effective  date of the
amendment or  termination  or any rights that a  Non-Employee  Director,  former
Non-Employee  Director,  or a  Beneficiary  has in any Deferral  Account or Unit
Account at the effective  date of the amendment or  termination.  If the Plan is
terminated,  however, the Company may, at its option,  accelerate the payment of
all deferred and other benefits payable under this Plan.
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Article VI - Government Regulations

6.1      Government Regulations.

         (a) The  obligations  of the Company to issue any Stock pursuant to the
Plan shall be subject to all  applicable  laws,  rules and  regulations  and the
obtaining  of all such  approvals  by  governmental  agencies  as may be  deemed
necessary or appropriate by the Board of Directors of the Company.

         (b) The Board of  Directors of the Company may make such changes to the
Plan as may be necessary or appropriate to comply with the rules and regulations
of any governmental authority.

Article VII - Administration

7.1 In General. The Plan shall be administered by the Compensation  Committee of
the Board of  Directors  (the  "Committee"),  which  shall  have full  power and
authority, subject to the provisions of the Plan, to supervise administration of
the Plan and to interpret the provisions of the Plan and of any award,  issuance
or payment of Stock or Stock Units  hereunder.  Any  decision  by the  Committee
shall be final and binding on all parties.  No member of the Committee  shall be
liable for any determination  made, or any decision or action taken with respect
to the Plan or any award,  issuance or payment of Stock or Stock Units under the
Plan.  The  Committee  may delegate any of its  responsibilities  to one or more
agents,  including employees of the Company or one or more of its affiliates and
subsidiaries,  and may retain  advisors to provide advice to the  Committee.  No
Participant  shall participate in the making of any decision with respect to any
question  relating to any Stock or Stock Unit issued under the Plan  exclusively
to that Participant.

7.2 Rules and Interpretation.  The Committee shall be vested with full authority
to make such rules and  regulations as it deems necessary to administer the Plan
and to interpret and administer the provisions of the Plan in a uniform  manner.
Any  determination,  decision or action of the Committee in connection  with the
construction, interpretation, administration or application of the Plan shall be
final, conclusive and binding on all parties.

7.3 Expenses.  The cost of issuing and paying Stock and Stock Units  pursuant to
the Plan  and the  expenses  of  administering  the  Plan  shall be borne by the
Company.

Article VIII - Miscellaneous

8.1 Unfunded  Plan.  The Plan shall be unfunded  with  respect to the  Company's
obligation  to pay any amounts in the  Deferral  Accounts and any Stock Units in
the Unit  Accounts  and a  Participant's  rights to receive  any  payment of any
amounts in the Deferral  Accounts and any Stock Units in the Unit Accounts shall
not be greater than the rights of an unsecured general creditor of the Company.
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8.2 Assignment; Non-Alienation. The rights, benefits or interests a Non-Employee
Director may have under this Plan, any Deferral  Account or any Unit Account are
not  assignable  or  transferable  and shall  not be  subject  in any  manner to
alienation,  sale or any encumbrances,  liens, levies,  attachments,  pledges or
charges of the  Participant  or his or her creditors.  Any action  attempting to
effect any transaction of that type shall be void and of no force and effect.

8.3  Death  Benefit;   Designation  of  Beneficiaries.   Upon  the  death  of  a
Participant, the Stock Units remaining in his or her Unit Account as of the date
of death and the amounts of cash remaining in his or her Deferral  Account as of
the  date of death  shall be paid to the  beneficiary  or  beneficiaries  of the
Participant,  or to his or her estate,  as  described  in this  Section  8.3, in
shares of Stock and in cash,  as the case may be,  in a single  distribution.  A
Participant may designate a beneficiary or beneficiaries to receive any payments
under the Plan upon his or her  death.  A  beneficiary  designation  shall be in
writing on a form  acceptable  to the Company and shall be  effective  only upon
delivery  to  the  Company.  A  beneficiary  designation  may  be  revoked  by a
Participant  at any time by delivering to the Company  either  written notice of
revocation or a new written  beneficiary  designation.  The written  beneficiary
designation  last delivered to the Company prior to the death of the Participant
shall control.  If no  beneficiary  has been  designated,  amounts due hereunder
shall be paid to the Participant's estate.

8.4 No Guarantee of  Directorship.  Neither the adoption and  maintenance of the
Plan nor any election made  hereunder by a  Participant  shall be deemed to be a
contract  between the Company and the  Participant to retain his or her position
as a director of the Company.

8.5 Applicable Law. The validity,  interpretation and administration of the Plan
and any rules,  regulations,  determinations  or  decisions  hereunder,  and the
rights of any and all persons having or claiming to have any interest  herein or
hereunder,  shall be determined  exclusively in accordance  with the laws of the
State of New York  (without  regard to the choice of laws  provisions  thereof),
except to the extent such laws are preempted by the laws of the United States of
America.

8.6  Notices.  All  notices,  elections  or other  communications  made or given
pursuant to the Plan shall be in writing and shall be sufficiently made or given
if hand-delivered or mailed by certified mail, addressed (if from the Company to
the  Participant) to any Participant at the address  contained in the records of
the Company for such  Participant,  or addressed (if from the Participant to the
Company) to the Secretary of the Company at its principal office.

8.7 Headings. The headings in the Plan are for reference purposes only and shall
not affect the meaning or interpretation of the Plan.

Article IX - Effective Date of the Plan

9.1 Effective Date. The Plan shall be effective immediately upon the date of its
approval by the shareholders of the Company (the "Effective Date").