PSC INC.
                               675 Basket Road
                           Webster, New York 14580



                                April 30, 1997




By Hand Delivery

Mr. L. Michael Hone
4 Fawn Road
Pittsford, New York  14534

Dear Mr. Hone:

      This letter will confirm the agreement (the "Severance Agreement") between
you and PSC Inc. ("PSC")  concerning your employment by PSC and its termination.
For good and valuable consideration,  receipt and sufficiency of which is hereby
acknowledged, you and PSC agree as follows:

      1. You hereby resign your employment with PSC and all of its  subsidiaries
and other affiliates (collectively with PSC, the "Companies") and your positions
and offices as Chairman,  Chief Executive Officer,  President and as a member of
the Board of  Directors  of PSC, as well as all other  positions,  offices,  and
directorships  with any of the Companies,  effective as of the close of business
on April 29, 1997 (the "Termination  Date"). In connection  herewith,  you shall
execute a letter of resignation in the form attached  hereto as Exhibit A. It is
understood  and agreed that the Companies will take actions in reliance on these
resignations and that they are irrevocable.

      2.  PSC  agrees  to pay  you  severance  pay in the  aggregate  amount  of
$1,251,250 plus a portion of the  performance  bonus referred to in Section 4(c)
of the Employment  Agreement if earned,  equal to one-third of such bonus and up
to two weeks accumulated  vacation pay, which shall be in lieu of all amounts in
the nature of continued salary,  bonus or severance  provided for in the Amended
and Restated Employment Agreement dated as of September 14, 1995 between you and
PSC (the  "Employment  Agreement").  This  severance pay, less federal and state
income taxes and other deductions that PSC is legally required to

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withhold,  will be payable to you as follows  beginning on the Delivery Date (as
defined below) in accordance with the regular payroll practices:

Period  Aggregate Annual Amount From the Delivery Date until the first $385,000,
anniversary  of the  Delivery  Date  ("Year 1") After Year 1 and until the third
anniver$385,000, of the Delivery Date ("Years 2 and 3");

provided,  however,  that during  Years 2 and 3, 50% of all  compensation  paid,
directly or indirectly, by any source other than PSC in respect of your services
shall be offset  against the payments due from PSC under this  Agreement and you
shall  provide  to PSC a monthly  report of any and all such  compensation.  You
shall  also be paid at the end of Year 1 a  lump-sum  payment  of  $96,250.  PSC
acknowledges that you shall be entitled to receive your regular payroll check on
Thursday, May 15, 1997 without deduction for repayment of the Notes.

      3. In addition,  you agree that you shall remain liable, on a non-recourse
basis,  for the  indebtedness  to PSC evidenced by each of the promissory  notes
dated April 3, 1995 and April 17, 1995 (the "1995 Notes") in accordance with the
terms and  provisions of such 1995 Notes and the  indebtedness  evidenced by the
promissory note dated September 3, 1996 and December 24, 1996 (the "1996 Notes",
and together with the 1995 Notes, the "Notes") except that interest shall accrue
thereon  but only be payable  upon  maturity  of the Notes;  and that such Notes
shall be secured by all shares of the Common  Stock of PSC,  options to purchase
shares  of Common  Stock of PSC and  shares  issued  upon the  exercise  of such
options  held by you.  In  connection  therewith,  you  shall  execute  a pledge
agreement in the form attached hereto as Exhibit B (the "Pledge  Agreement") and
deliver  all  certificates  or  other  documents  evidencing,   representing  or
otherwise  relating to such shares and options to PSC on or prior to May 2, 1997
(the date such  delivery  occurs  being  referred  to as the  "Delivery  Date").
Notwithstanding the foregoing,  you may, at any time prior to the Delivery Date,
elect that in lieu of the Notes becoming  payable on a  non-recourse  basis such
that PSC's only remedy in the event of a default  thereunder  is to exercise its
rights under the Pledge Agreement;

             (a) the indebtedness  evidenced by the 1995 Notes shall be forgiven
      and  extinguished  over time ratably  beginning  on the Delivery  Date and
      ending on the third  anniversary of the Delivery Date and PSC shall pay or
      reimburse to you the amount of taxes  incurred by you in  connection  with
      such forgiveness of indebtedness upon your providing  evidence  reasonably
      satisfactory to PSC of the payment of such taxes; and

            (b) you shall remain liable on a recourse basis for the indebtedness
      evidenced by the 1996 Notes,  in accordance  with the terms and provisions
      of such 1996 Notes,

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      except  that  interest  shall  accrue  thereon  but only be  payable  upon
      maturity or accelerated maturity of such 1996 Notes.

      4. Options for 957,226  shares of Common Stock  granted you in  connection
with your employment  with PSC (the "Options")  which are outstanding and vested
as of the Termination  Date shall be exercisable in accordance with the terms of
the Options and any applicable  related agreements until their stated expiration
date, notwithstanding any term thereof to the contrary. You agree that while any
Option is  outstanding,  you will not effect  any  short-sales  in PSC's  Common
Stock.

      5. Provided that you exercise your right to continue your participation in
PSC's  medical and dental  insurance  plans (the "Plans")  under the  applicable
federal law  ("COBRA"),  then until the earlier of the third  anniversary of the
Termination  Date or the date you cease to be eligible for  participation  under
COBRA, PSC will contribute to the premium cost of your coverage and that of your
eligible  dependents under the Plans at the same rate that it contributes to the
premium cost of coverage of active employees and their eligible  dependents,  as
that rate may change from time to time,  provided  you pay the  remainder of the
premium  cost  by  payroll  deduction.  In  addition,  PSC  shall  continue  its
obligations  under Sections 5(b) and (d) of the Employment  Agreement  until the
earlier of the third  anniversary of the  Termination  Date or the date on which
you accept  employment from any other person or entity.  PSC's obligations under
this Section 5 shall  terminate on the date, if any, that you accept  employment
from any other  person or entity.  PSC shall also  continue the monthly net auto
allowance of $1,000.00  and annual tax return  allowance  and enhanced long term
disability  to the same extent as offered to the other  members of PSC's  senior
management team.

      6. From and after the  Termination  Date,  you shall  remain  available to
provide services to PSC as a consultant, for no additional consideration, as the
Board of Directors of PSC may reasonably  request from time to time for a period
expiring on the third anniversary of the Termination Date;  provided that during
Years 2 and 3 you shall not be  required  to provide  more than 20 hours of such
consulting hours per month.  Upon request PSC shall reimburse you for reasonable
out of pocket expenses  incurred by you in connection with the provision of such
services.

      7. It is our understanding  that you will not be eligible for unemployment
compensation  while you are  receiving  payments  from PSC under this  Severance
Agreement.  After that time,  however,  PSC will not oppose your application for
unemployment compensation benefits, provided that your application is consistent
with applicable law (for example, that you are still unemployed).


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      8. You covenant  that you will,  within 10 days of the  Termination  Date,
return to PSC any and all records and other property  belonging to the Companies
or any  customers  of the  Companies,  including  but not limited to any and all
documents,  materials and information  related to the business of the Companies,
present or otherwise,  all books,  documents,  effects,  monies,  and securities
belonging to the  Companies or for which the  Companies  may be liable to others
and all keys,  equipment and any other property of the  Companies,  which are in
your  possession,  charge,  custody or control.  As of the  Delivery  Date,  PSC
transfers to your ownership of the cellular phone and laptop  computer  provided
by PSC for your business use during your employment.

      9. You  covenant  that you will  within  30 days of the  Termination  Date
submit requests for reimbursement for all legitimate,  business-related expenses
incurred  by  you  prior  to  the  Termination   Date,   along  with  supporting
documentation, and that no further reimbursement will be due you from any of the
Companies upon  reimbursement  by PSC to you of such expenses (to the extent not
previously  advanced).  At the time of the first  payment of the  severance  pay
described in paragraph 2 above,  PSC shall also  reimburse you for attorney fees
in connection with the negotiation of this Severance Agreement,  upon receipt of
copies of invoices therefor in an amount not to exceed $7,500.

      10. You agree and acknowledge  that as of the Termination  Date you do not
have the authority,  and will not endeavor, to act or to make representations or
commitments for PSC or any of the other Companies,  or to obligate PSC or any of
the other  Companies to any contracts or to pledge their credit.  You also agree
that,  without the prior  written  consent of the  Chairman of PSC, you will not
enter onto any premises owned or leased by any of the Companies.

      11. You agree that  payment  to you in  accordance  with the terms of this
Severance  Agreement shall  constitute  payment in full of any and all sums that
are now or might hereafter become owing to you from PSC or any of the Companies,
whether for services  performed  during your  employment  with PSC or any of the
Companies or otherwise.

      12. You agree that you will  continue to use your best  efforts to support
and promote the  interests and  reputation of PSC in the community  (without any
obligation to devote time or financial resources in connection  therewith);  you
will not do or say  anything  that might be  detrimental  to PSC's  business  or
reputation of PSC or the Companies;  or that might disparage PSC or any of their
past or present directors,  officers,  employees, agents, or stockholders or any
other persons,  corporations and other entities  connected with it; and that you
will not  otherwise do or say anything that could disrupt the good morale of the
employees of PSC or otherwise harm its interests or reputation.  PSC agrees that
it will not do or say anything  that might be  detrimental  to you or that might
disparage  you.  You further  agree that you will not,  directly or  indirectly,
reveal or discuss any information or express any opinion whatsoever

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concerning PSC or its business publicly, including but not limited to making any
statement   regarding  PSC,   either   directly  or  by   implication,   to  any
representative of the print or electronic media. Without limiting the generality
of the foregoing, you acknowledge and agree that you have no disagreement of the
type  referred  to in Item 6 of Form 8-K under the  Securities  Exchange  Act of
1934, as amended,  and that you will not submit a letter of the type referred to
in such Item.

      13. You  acknowledge  your continuing  obligations  under Sections 6 (with
respect to Inventions (as defined in the Employment  Agreement)  made during the
term of your employment or based upon any PSC proprietary technology),  7, 8 and
9 of the  Employment  Agreement  and  agree  to  continue  to  meet  all of your
obligations thereunder in accordance with the terms of said Sections 6, 7, 8 and
9. You  further  agree  that,  until  the  expiration  of three  years  from the
Termination  Date,  you shall give PSC notice of each new job or other  business
activity (to the extent permitted by applicable law) you plan to undertake prior
to beginning any such  activity and shall provide PSC with such other  pertinent
information concerning such activities as PSC may reasonably request in order to
determine your continued compliance with your obligations under Section 9 of the
Employment Agreement.

      14.  You  agree to  execute  and  deliver  to PSC any and all  agreements,
instruments and other documents necessary or desirable to accomplish or to carry
out the provisions of this Severance  Agreement,  including without  limitation,
the assignment and transfer,  to perfect the title, and/or to obtain and promote
the right to PSC's exclusive enjoyment of any improvements,  inventions,  ideas,
suggestions and discoveries made or developed by you while in the employ of PSC.
You agree, when reasonably requested by PSC, to testify in any legal proceedings
on  behalf  of PSC and to sign  all  lawful  papers  and  execute  and  sign any
original,  additional,  provisional or reissue  applications  for letters patent
with  respect  to  such  improvements,   inventions,   ideas,   suggestions  and
discoveries which may be necessary or desirable to accomplish the foregoing, and
to do all  lawful  acts to aid PSC to obtain  and  enforce  protection  of their
improvements,  inventions,  ideas,  suggestions  and  discoveries in any and all
countries.  If requested to do so, you will be provided reasonable out of pocket
expenses incurred in providing such testimony or assistance.

      15. You agree that  restraints  contained  in  Sections  6, 7 and 9 of the
Employment  Agreement and Section 13 hereof are necessary for the reasonable and
proper  protection of PSC and the other Companies and that each and every one of
the  restraints is reasonable in respect to subject  matter,  length of time and
geographical  area. You further agree that any violation of any of the covenants
contained in Sections 6, 7 or 9 of the Employment Agreement or Section 13 hereof
will cause PSC and the other Companies irreparable injury and agree that PSC and
each of the other Companies,  in addition to any other remedies available to it,
shall be entitled to  preliminary  and permanent  injunctive  relief against any
breach or threatened  breach  without having to post bond. In the event that any
provision of

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Section 6, 7 or 9 of the Employment Agreement or Section 13 hereof is determined
by any court of  competent  jurisdiction  to be  unenforceable  by reason of its
being extended over too great a time, too large a geographic area or too great a
range of activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law. You agree that no immaterial
breach of, or failure to perform under,  this  Severance  Agreement or any other
agreement  with  you on the  part  of PSC or any of the  other  Companies  shall
relieve you of any of your obligations under Section 6, 7 or 9 of the Employment
Agreement  or Section 13 hereof (it being  understood  that  failure to make the
payments required under Section 2 hereof is not an immaterial breach).

      16.  If any  covenant  or  provision  or part  thereof  contained  in this
Severance  Agreement is  determined to be void or  unenforceable  in whole or in
part,  it shall not be deemed to  affect  or impair  the  validity  of any other
covenant or part thereof or provision of this Severance  Agreement.  Each of the
provisions  contained is hereby declared to be a separate and distinct covenant,
severable one from the other and the most  restrictive of such  covenants  shall
apply unless such  covenant is  determined  to be invalid or  unenforceable,  in
which case the next most  restrictive  shall apply,  and so on, and PSC shall be
entitled to enforce each such covenant to the fullest  extent  permitted by law,
in  equity  or  otherwise,  notwithstanding  that any  other or  others  of such
covenants may not be enforceable.

      17. You agree to  cooperate  with PSC with  respect to matters  that arose
during or related to your employment,  including but not limited to, cooperation
in connection with any litigation or governmental investigation or regulatory or
other  proceeding  which  may have  arisen  or which  may  arise  following  the
execution of this  Severance  Agreement.  As part of the  cooperation  agreed to
herein,  you shall provide  complete and truthful  information  to PSC and their
attorneys  with  respect  to any  matter  arising  during  or  related  to  your
employment.  Specifically,  you shall make yourself reasonably available to meet
with PSC's  personnel and attorneys and shall provide to PSC and their attorneys
any and all documentary or other physical evidence pertinent to any such matter.
If requested to do so, you will be provided  reasonable  out of pocket  expenses
incurred in connection therewith. Finally, you shall promptly notify PSC, within
three business days, of your receipt from any third party or governmental entity
of a request  for  testimony  and/or  documents,  whether  by legal  process  or
otherwise, relating to any matter arising during or relating to your employment.
You agree that your cooperation  hereunder is an integral part of this Severance
Agreement.

      18.  Any and all  notices,  requests,  demands  and  other  communications
provided  for by this  Severance  Agreement  shall be in  writing  and  shall be
effective  when  delivered  in person or  deposited  in the United  States mail,
postage prepaid, registered or certified and addressed to you as follows:

            Mr. L. Michael Hone

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            4 Fawn Run
            Pittsford, New York 14534

or, in the case of the Companies, to the Chairman of PSC at the 
following address:

            PSC Inc.
            675 Basket Road
            Webster, New York  14580
            Attention:  Chairman of the Board of Directors

with a copy to:

            Winthrop G. Minot, Esquire
            Ropes & Gray
            One International Place
            Boston, MA  02110

      19. This letter  contains  the entire  agreement  between you and PSC, and
replaces all prior and contemporaneous  agreements and  understandings,  whether
written  or oral,  with  respect to your  employment,  its  termination  and all
related matters, excluding only your obligations under Sections 6, 7, 8 and 9 of
the Employment  Agreement,  the Pledge Agreement and your rights and obligations
with respect to securities of PSC, including without limitation, the Options and
any related  agreements,  all of which shall  remain in full force and effect in
accordance  with their terms.  This  Severance  Agreement may not be modified or
amended, and no breach shall be deemed to be waived, unless agreed to in writing
by you  and an  expressly  authorized  representative  of  PSC.  This  Severance
Agreement  shall be governed by and  interpreted in accordance  with the laws of
the State of New York, without regard to the conflict of laws principles thereof
which would result in the  application of the domestic  substantive  laws of any
other jurisdiction.

      20. We want to be certain that this  Severance  Agreement will resolve any
concerns that you might have and so ask that you  carefully  consider its terms,
including the release of claims  contained in the following two Paragraphs  and,
in that  regard,  PSC  encourages  you to seek the advice of an attorney  before
signing this Severance Agreement.

      21. You agree that this Severance Agreement shall be in complete and final
settlement of, and releases PSC the Companies and all of their  respective  past
and present directors,  shareholders,  officers, employees, advisors, attorneys,
agents,  successors and assigns,  or any of them, both individually and in their
official  capacities,  and all other  persons,  corporations  and other entities
connected with any of them (hereinafter collectively the "Releasees"),  from any
and all causes of action, rights or claims in any way related to,

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connected with, or arising out of your employment by PSC and its termination, or
pursuant to any federal,  state or local  employment  law,  regulation  or other
requirement,  including without  limitation Title VII of the Civil Rights Act of
1964, and applicable state fair employment  practices  statutes,  each as may be
amended  from  time to time.  You  hereby  release  and  forever  discharge  the
Releasees from any and all such causes of action, rights or claims.

      22. PSC agrees that this  Severance  Agreement  shall be in  complete  and
final settlement of and releases you, your heirs, executors,  administrators and
assigns and all others  connected  with you, from, any and all causes of action,
rights or claims  which  PSC or the  Companies  have had in the past or now have
against  you in any way  related to or arising  out of your  employment  and its
termination;  provided,  however,  that PSC does not  release you from any claim
arising out of any conduct by you that was not undertaken both in good faith and
in the reasonable  belief that it was in the best interests of PSC to the extent
PSC or the  Companies  incur costs or expenses  in  connection  with third party
claims or settlements initiated after the date hereof.

      23. This Severance  Agreement may be executed in one or more counterparts,
each of which shall  constitute  an  original  and all of which  together  shall
constitute one and the same document.  This Severance Agreement shall be binding
upon,  and shall  inure to the  benefit  of the  successors  and  assigns of the
parties hereto.

      24. In addition to any and all  remedies  that may be available at law, in
the event of a breach of this  Severance  Agreement,  PSC shall be  entitled  to
specific  performance of the agreements and  obligations of you hereunder and to
such other  injunctive or other equitable relief as may be granted by a court of
competent jurisdiction.

      In signing this agreement,  you give PSC assurance that you have signed it
voluntarily  and with a full  understanding  of its  terms and that you have had
sufficient  opportunity to consider this agreement and to consult with anyone of
your choosing before signing it and this

[The rest of this page has been intentionally left blank]

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letter shall take effect as a legally-binding agreement among you and PSC on the
basis set forth above.  The enclosed copy of this letter,  which you should also
sign and date, is for your records.

                                    Sincerely,
                                    PSC INC.


                         By:___________________________
                                     Title:

Accepted and agreed:


--------------------------
L. Michael Hone
Date:______________________


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                                                                     Exhibit A



                               L. Michael Hone
                                  4 Fawn Run
                          Pittsford, New York 14534

                                April __, 1997

Board of Directors
PSC, Inc.
675 Basket Road
Webster, New York  14580

To the Board of Directors:

      I hereby resign from the employ of PSC, Inc. and from the employ of all of
PSC's  subsidiaries   and/or  other  affiliates   (collectively  with  PSC,  the
"Companies") and my positions and offices as Chairman,  Chief Executive Officer,
President and as a member of the Board of Directors of PSC, as well as all other
positions,  offices,  and  directorships  with any of the  Companies,  effective
immediately. I recognize and acknowledge that the Companies will take actions in
reliance  upon  this  notice  of  resignation,  and  I  acknowledge  that  it is
irrevocable.

                                   Sincerely,


                                 L. Michael Hone

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