AGREEMENT

         THIS AGREEMENT  dated as of June 2, 1998 by and between PSC Inc., a New
York corporation ("PSC" or the "Company") and ROBERT S. EHRLICH ("Ehrlich").
         WHEREAS,  Ehrlich was elected Chairman of the Board of Directors of PSC
         on April 30, 1997, and WHEREAS, the Company and Ehrlich entered into an
         Agreement dated as of June 2, 1997 (the "1997
Agreement"), and
         WHEREAS,  the  parties  desire to amend the 1997  Agreement  in certain
respects and to restate in its entirety said 1997 Agreement.
         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants contained in this Agreement, the parties agree as follows:

         1. Services. Ehrlich shall perform such duties and exercise such powers
as are  customarily  associated  with the  position  of  Chairman  of a Board of
Directors,  including but not limited to, presiding at all meetings of the Board
of Directors,  selecting and chartering  Board  committees,  establishing  Board
agendas, and monitoring and reviewing the performance of the President and Chief
Executive Officer. In addition,  he shall perform such other duties as the Board
may from time to time  direct,  including  but not limited to,  services in such
areas as strategic planning,  corporate  development,  mergers and acquisitions,
and  development of overseas  markets.  During the Term, in good faith,  Ehrlich
shall exert all  reasonable  efforts to promote the interests of the Company and
shall  devote  such time,  attention  and  energies  to the  performance  of his
responsibilities and duties hereunder and at such locations as may reasonably be
deemed  necessary or  appropriate by the parties.  During the Term,  Ehrlich may
have  other  business   investments  and  participate  in  other  unrelated  and
non-competitive   business  ventures,  but  these  shall  not  interfere  or  be
inconsistent with his duties hereunder. Ehrlich may perform his services at such
times, at such locations and by such means (i.e., in person, by phone, by fax or
other  electronic  devices)  as shall be  reasonably  appropriate  and  mutually
agreeable.

<PAGE>

         2. Term. The term of service under this Agreement  shall commence as of
the date of this  Agreement and shall  terminate on December 31, 2000 or on such
earlier date as Ehrlich may no longer be a member of the Board of Directors (the
"Term").
         3.  Compensation.  For all  services  to be  rendered to the Company by
Ehrlich in any  capacity,  PSC shall pay to Ehrlich a fee at the annual  rate of
$85,000. The fee shall be payable biweekly.
         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.
         5.  Confidential  Information.  Ehrlich agrees that during the Term and
for five years thereafter, he will not, except as required by the performance of
his duties under this Agreement,  disclose or authorize  anyone else to disclose
or use or make known for his or another's benefit, any confidential information,
knowledge or data of the Company, whether or not patentable or copyrightable, in
any way acquired by him from the inception of his original relationship with the
Company in any capacity through the expiration of the Term (herein "Confidential
Information").  Confidential Information,  for purposes of this Agreement, shall
include,  but not be limited to,  matters not  readily  available  to the public
which are:

a.   of a technical  nature,  such as, but not limited  to,  methods,  know-how,
     formulae,   compositions,   drawings,  blueprints,   compounds,  processes,
     discoveries, machines, inventions, computer programs and similar items:

b.   of a business nature,  such as, but not limited to, information about sales
     or  lists  of  customers,  prices,  costs,  purchasing,  profits,  markets,
     strengths and  weaknesses  of products,  business  processes,  business and
     marketing plans and activities and employee personnel records;

c.   pertaining to future  developments,  such as, but not limited to,  research
     and development, future marketing or merchandising plans or ideas.
<PAGE>

         Immediately  upon  termination  of Ehrlich's  services,  Ehrlich  shall
deliver to the Company all originals and copies of everything in his  possession
or under his  control  which  embodies  or  contains  Confidential  Information,
including,  without limitation, all documents,  correspondence,  specifications,
blueprints,  notebooks, reports, sketches, formulae, computer programs, computer
discs,  sales and other materials,  price lists,  customer lists or information,
samples, and all other materials.

         Confidential  Information  shall not include  information  which (i) is
published or otherwise becomes generally available to the public other than by a
breach  of  confidentiality,  or (ii)  Ehrlich  can  show by  documentation  was
properly  in  his  possession   prior  to  the   commencement  of  his  original
relationship  with the Company,  or (iii)  becomes  available to Ehrlich from an
independent  source without breach of his Agreement or violation of law, or (iv)
is  independently  developed  by  Ehrlich  without  the  use  of  the  Company's
Confidential Information.

         6.       Covenant Not to Compete.

a.   In light of the  special  and  unique  services  that have been and will be
     furnished to the Company by Ehrlich and the  Confidential  Information that
     has been and will be  disclosed  to him  during his  relationship  with the
     Company,  Ehrlich agrees that during the Term, and for a period of eighteen
     (18) months  thereafter,  he will not,  without the written  consent of the
     Company,  directly or  indirectly,  whether as principal,  agent,  officer,
     director, consultant,  employee, partner, stockholder or owner of or in any
     capacity with any  corporation,  partnership,  business,  firm,  individual
     company or any entity  located any where in the world  engage in, or assist
     another to engage in, any work or activity in any way competitive  with the
     Business of the Company (as hereinafter defined).  However,  nothing herein
     shall  prevent  Ehrlich  from owning not more than five percent (5%) of the
     outstanding publicly traded shares of common stock of a corporation,  as to
     which corporation Ehrlich has no relationship other than as a shareholder.

     Ehrlich  specifically  agrees that because of his special expertise and the
     special and unique  services  that he will be furnishing  the Company,  and
     because of the  Confidential  Information  that has been acquired by him or
     that will be disclosed to him during the Term, the above stated  geographic
     areas and time  period,  in and during  which he will not compete  with the
     Company,  are  reasonable in scope and duration and are necessary to afford
     the Company just and adequate  protection  against the  irreparable  damage
     which would result to the Company from any  activities  prohibited  by this
     Section.
<PAGE>

b.   If Ehrlich in any way breaches the  obligations  specified in this Section,
     the  Company  shall  have the  right,  in  addition  to any other  remedies
     available to it, to terminate the further  payment of any amounts due under
     Section 3 hereof.

c.   If any  provision  hereof  is  found  to be  unreasonably  broad,  it shall
     nevertheless  be  enforceable  to the extent  reasonably  necessary for the
     protection  of the  Company  and to carry  out to the  fullest  extent  the
     parties'  mutual  intent in entering into this  Agreement,  which intent is
     that the provisions of this Section will be strictly enforced as agreed to.

d.   For  purposes  of this  Agreement,  the  "Business  of the  Company" is the
     development,  manufacturing  and  marketing of  technologies,  products and
     services for the automatic  identification and keyless data entry industry,
     and  includes,  but is not limited to,  products,  services,  applications,
     systems  and  technologies  relating  to bar coded  data,  magnetic  stripe
     encoded data, radio frequency  communications of bar coded or related data,
     optical character recognition, machine vision as applied to the recognition
     of bar coded data, electronic interchange of bar coded or related data, and
     custom reed-relay switching systems. The Business of the Company shall also
     include any  business  in which the  Company is  actually  engaged or as to
     which it is doing research and development  during Ehrlich's  services with
     the Company.

         7. Injunctive  Relief.  Ehrlich agrees that in the event of a breach or
threatened breach by Ehrlich of any of the provisions of Sections 5 or 6 hereof,
the Company  shall be entitled to an  injunction  restraining  Ehrlich from such
breach or threatened breach without posting any bond or other security.  Nothing
herein, however, shall be construed as prohibiting the Company from pursuing, in
conjunction with an injunction or otherwise, any other remedies available to the
Company for such breach or threatened breach,  including the recovery of damages
from Ehrlich.
<PAGE>

         8. Notices. All notice given in connection with this Agreement shall be
in writing and shall be  delivered  either by personal  delivery,  by  telegram,
telex,  telecopy or similar  facsimile  means, by certified or registered  mail,
return  receipt  requested,  or by express  courier to the parties hereto at the
following addresses:

           To Ehrlich:                  To PSC:
           Robert S. Ehrlich            PSC Inc.
           P.O. Box 1334                675 Basket Road
           Efrat 90962                  Webster, NY  14580
           Israel                       Attn: Chief Executive Officer
           Fax: 011-972-293-2189        Fax:  716-265-6406

or at such other  address  and  number as either  party  shall  have  previously
designated by written notice given to the other party in the manner  hereinabove
set forth.  Notice  shall be deemed  given when  received,  if sent by telegram,
telex,  telecopy or similar  facsimile  means  (confirmation  of such receipt by
confirmed facsimile  transmission being deemed receipt of communications sent by
telex,  telecopy or other facsimile means); and when delivered and receipted for
(or  upon  the  date of  attempted  delivery  where  delivery  is  refused),  if
hand-delivered,  sent  by  express  courier  or  delivery  service,  or  sent by
certified or registered mail, return receipt requested.

         9. Waiver. Any waiver of a breach of any of the terms of this Agreement
shall not operate as a waiver of any other  breach of such terms or of any other
terms,  nor shall failure to enforce any term hereof  operate as a waiver of any
such term or of any other term.

         10.  Severability.  If any term of this  Agreement  or the  application
thereof is held invalid or unenforceable, the validity or unenforceability shall
not affect any other terms of this  Agreement  which can be given effect without
the invalid or unenforceable term.

         11.  Governing  Law:  Venue.  This  Agreement  shall be  construed  and
enforced in  accordance  with and governed by the internal  laws of the State of
New York,  without  reference to conflict of law  principles  or the domicile or
residence of any  individual  party if other than New York.  The parties  hereby
submit and consent to the exclusive  personal  jurisdiction of the Supreme Court
of New  York,  Monroe  County or of the  United  States  District  Court for the
Western  District  of New York for any  legal  action  instituted  by any  party
against any other with respect to the subject  matter hereof and process in such
action  shall be  effectively  served  if served in  accordance  with  Section 8
hereof.
         12. Prior Agreement.  This Agreement supersedes all previous agreements
and understandings relating to the subject matter herein.

         13. Entire  Agreement.  This  Agreement  contains the entire  agreement
between the parties with respect to the subject  matter  hereof.  This Agreement
may not be amended or changed except by a writing signed by both parties.


<PAGE>


         IN WITNESS WHEREOF, Ehrlich has executed this Agreement and the Company
has caused this Agreement to be executed as of the date set forth above.

         PSC INC.

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



         Robert S. Ehrlich