AGREEMENT


     THIS AGREEMENT dated as of June 2, 1997 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  desires to  terminate  all existing  agreements  and
understandings  with Ehrlich,  and in lieu thereof, to enter into this Agreement
providing, among other things, for his services as Chairman of the Board, and

     WHEREAS, Ehrlich is willing to enter into this Agreement upon the terms and
conditions hereinafter set forth.

     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.  Ehrlich  shall serve as Chairman  of the Board of  Directors  at the
     pleasure of the Board of Directors or until his  successor  shall have been
     duly elected or until he shall have been removed with or without cause by a
     vote of a majority  of the entire  Board of  Directors  then in office at a
     meeting called for that purpose whenever in its judgment the best interests
     of the Company will be served thereby (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 $75,000.
     The fee shall be payable biweekly.

4. Options.

         a.       As  additional  compensation  for  services  to be rendered as
                  Chairman of the Board,  PSC,  pursuant to the  Company's  1994
                  Stock Option Plan,  hereby  grants  Ehrlich a stock option for
                  35,000  Common  Shares of the Company at an exercise  price of
                  $6.50 per share, the fair market value of the Company's Common
                  Shares on the date hereof,  upon the terms and  conditions set
                  forth in the Option Agreement attached hereto as Exhibit A.
<PAGE>

         b.       As compensation in full for significant past services rendered
                  to the  Company  as a  consultant  in the  integration  of the
                  Company  and  Spectra-Physics  Scanning  Systems,  Inc.,  PSC,
                  pursuant  to the  Company's  1994 Stock  Option  Plan,  hereby
                  grants to Ehrlich a stock option for 50,000  Common  Shares of
                  the Company at an exercise price of $6.50 per share,  the fair
                  market  value  of the  Company's  Common  Shares  on the  date
                  hereof,  upon the terms and conditions set forth in the Option
                  Agreement attached hereto as Exhibit B.

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.

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.
<PAGE>

     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. 

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.
<PAGE>

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.

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.
<PAGE>

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.

         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: ------------------------------
                      Robert C. Strandberg
                      President & Chief Executive Officer



                      ---------------------------------
                      Robert S. Ehrlich