SECOND AMENDMENT
                                       TO
                                    AGREEMENT


         This  Second  Amendment  is dated  as of July  13,  1999 and is made in
respect  of the  Agreement  dated  as of June 2,  1998 and the  First  Amendment
thereto  dated as of December  11,  1998 (as  amended and in effect  immediately
prior to the date hereof,  the  "Agreement") by and between PSC INC., a New York
corporation ("PSC" or the "Company"), and ROBERT S. EHRLICH ("Ehrlich").

         WHEREAS,  Section 4 of the  Agreement  provides  that  Ehrlich  will be
awarded 17,500 restricted Common Shares of the Company on each of March 25, 1999
(the "1999 Award") and March 25, 2000; and

         WHEREAS,  the 1999  Award was not made on March 25,  1999  because of a
lack of a  sufficient  number  of  shares  in the 1994  Stock  Option  Plan (the
"Plan"); and

         WHEREAS,  at the  1999  Annual  Meeting  held  on  May  12,  1999,  the
shareholders  of the  Company  approved  an  increase  in the  number  of shares
allocated to the Plan and, accordingly, the 1999 Award can now be made; and

         WHEREAS,  Ehrlich has requested that equity portion of his compensation
be in the form stock  options for Common Shares rather than awards of restricted
Common Shares and the Board of Directors has consented to the change; and

         WHEREAS,  the number of stock  options that is equivalent to the number
of restricted Common Shares that otherwise would have been awarded to Ehrlich is
35,000 shares; and

         WHEREAS,  the Board of  Directors  has adopted a policy  whereby  stock
option grants to officers and directors in 1999 will be reduced by 50%; and
<PAGE>

         WHEREAS,  Ehrlich is willing to accept a 50% reduction in the number of
stock options to be granted to him in 1999.

         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  Second  Amendment  shall  have the
meanings defined in the Agreement.

         2.  Effective  as of March  25,  1999,  Section 4 of the  Agreement  is
deleted  in its  entity  and  replaced  by a new  Section  4, which will read as
follows:

                    "4.  Restricted   Stock/Stock   Options.   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 to the Agreement as Exhibit A.  Effective as of March
                  25,  1999,  the Company has granted  Ehrlich,  pursuant to the
                  Company's  1994 Stock  Option  Plan, a stock option for 17,500
                  Common  Shares of the Company at an  exercise  price of $8.625
                  per  share,  upon the  terms and  conditions  set forth in the
                  Stock  Option  Agreement  attached  hereto  as  Exhibit  A. If
                  Ehrlich is Chairman of the Board of  Directors  of the Company
                  on March 25, 2000,  PSC will grant  Ehrlich a stock option for
                  35,000  Common  Shares  pursuant to a Stock  Option  Agreement
                  similar  in  form  to  Exhibit  A,  as   modified  to  reflect
                  appropriate changes in grant, vesting and expiration dates and
                  in purchase and stock performance 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 stock option which
                  otherwise  would have been  granted to him on March 25,  2000,
                  fully vested and  exercisable and at a purchase price equal to
                  the Fair Market Value of the  Company's  Common  Shares on the
                  date preceding the date of the Change in Control."

         3. Except as modified by this Second  Amendment,  the  Agreement  shall
remain in full force and effect and is hereby ratified and confirmed.
<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Second 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



                                              Robert S. Ehrlich
<PAGE>

                                    EXHIBIT A

                                    PSC INC.

                          OPTION AGREEMENT PURSUANT TO
                             1994 STOCK OPTION PLAN


         OPTION  AGREEMENT,  executed in  duplicate  as of the 13th day of July,
1999,  between PSC INC., a New York corporation  (the "Company"),  and ROBERT S.
EHRLICH, Chairman of the Board of Directors of the Company (the "Optionee").

                                    RECITALS

         Optionee entered into a compensation agreement with the Company on June
2, 1998, the First Amendment to the compensation  agreement on December 11, 1998
and the Second Amendment to the  compensation  agreement on July 13, 1999 (as so
amended, the "Compensation Agreement").

         In accordance with the provisions of the Compensation Agreement and the
1994 Stock Option Plan of the Company (the "Plan"),  the Compensation  Committee
of the Board of  Directors  of the  Company has  authorized  the  execution  and
delivery  of this  Agreement  as partial  compensation  for the  performance  of
Optionee's  duties as Chairman of the Board on the terms and  conditions  herein
set forth.

         NOW,  THEREFORE,  in consideration of the mutual covenants  hereinafter
set forth and for other good and  valuable  consideration,  the  parties  hereto
agree as follows:

         1. Grant of Option. Subject to all the terms and conditions of the Plan
and this  Agreement,  the Company  hereby grants to the Optionee as of March 25,
1999 (the "Date of Grant") a  nonstatutory  stock option  ("Option") to purchase
17,500  common shares of the Company (such number being subject to adjustment as
provided in Section 8), $.01 par value,  on the terms and conditions  herein set
forth.

         2.       Purchase Price.  The purchase price  per common share  covered
by this Option shall be $8.625.
<PAGE>

         3. Vesting and Exercise.  This Option shall vest and be  exercisable as
follows:

                  (a)      with respect to 8,750 shares:

                           2,188 on March 25, 2000

                           2,187 on March 25, 2001

                           2,188 on March 25, 2002

                           2,187 on March 25, 2003

                  (b)      with respect to 8,750 shares:

                           2,916 shares at such time as the Fair Market
                           Value  (as  defined  in  the  Plan)  of  the
                           Company's  common  shares  equals or exceeds
                           $11.47 per share for 7  consecutive  days at
                           any time subsequent to the Date of Grant

                           2,917 shares at such time as the Fair Market
                           Value of the Company's  common shares equals
                           or   exceeds   $13.53   per   share   for  7
                           consecutive  days at any time  subsequent to
                           the Date of Grant

                           2,917 shares at such time as the Fair Market
                           Value of the Company's  common shares equals
                           or   exceeds   $15.70   per   share   for  7
                           consecutive  days at any time  subsequent to
                           the Date of Grant

                  (c)      Notwithstanding  that  the Fair  Market  Value of the
                           Company's  common shares does not reach the specified
                           performance  goals in (b) above,  this Option will be
                           fully exercisable after December 1, 2003.

                  (d)      This Option may not be exercised after five (5) years
                           from the Date of Grant (March 25, 2004).
<PAGE>

         4. Method of  Exercising  Option.  The Optionee may exercise the Option
granted to Optionee by giving  written  notice to the Company  which shall state
the  election  to exercise  the Option and the number of shares with  respect to
which the Option is being  exercised.  The written notice shall be signed by the
person exercising the Option, shall be delivered to the Company at its principal
executive office, and shall be accompanied by payment equal to the full purchase
price for the  shares  which are  exercised.  The  purchase  price of each share
purchased  upon  exercise of the Option shall be paid in full (a) in cash at the
time of exercise,  (b) with common  shares of the Company owned by the Optionee,
(c) by delivering  to the Company (i)  irrevocable  instructions  to deliver the
stock  certificates  representing  the  shares  for  which  the  Option is being
exercised,  directly to a broker,  and (ii)  instructions  to the broker to sell
such shares and  promptly  deliver to the  Company  the portion of the  proceeds
equal to the  total  purchase  price,  or (d) in any  combination  thereof.  For
purposes of making payment in common shares of the Company, such shares shall be
valued  at their  Fair  Market  Value  (as  defined  in the Plan) on the date of
exercise of the Option and shall have been held by the  Optionee for a period of
at least six (6) months.  Such notice shall be given on the form attached hereto
and designated as Exhibit A. In the event the Option shall be exercised pursuant
to Section 6(b) hereof by any person or persons  other than the  Optionee,  such
notice shall be accompanied by appropriate  proof of the right of such person or
persons to exercise the Option.

         5.  Non-Transferability  of Option  Rights.  This  Option  shall not be
transferable  by the  Optionee  except  by will or by the  laws of  descent  and
distribution.  During the life of the Optionee,  the Option shall be exercisable
only by Optionee.  More particularly (but without limiting the generality of the
foregoing),  the Option may not be  assigned,  transferred  (except as  provided
above),  pledged,  or  hypothecated  in any  way,  shall  not be  assignable  by
operation of law, and shall not be subject to  execution,  attachment or similar
process. Any attempted assignment,  transfer,  pledge,  hypothecation,  or other
disposition of the Option contrary to the provisions hereof, and the levy of any
execution,  attachment,  or similar  process upon the Option,  shall be null and
void and without effect.
<PAGE>

         6.       Termination of Chairmanship or Death

                  (a) If the Optionee's  position as Chairman of the Board shall
terminate for cause,  this Option shall cease to be  exercisable  on the date of
such termination.

                  (b) If  Optionee's  position  as  Chairman  of the Board shall
terminate  because  of death or  Disability  (as  defined  in the  Plan),  or if
Optionee  shall die after  termination  of his position as Chairman of the Board
but while  Optionee  could  have  exercised  this  Option,  this  Option  may be
exercised,  to the extent that the Optionee was entitled to do so at the date of
termination of his position as Chairman of the Board,  at any time, or from time
to time,  within  one (1) year  after  the date of death or  termination  of his
position as Chairman of the Board because of  Disability,  but in no event later
than the expiration date specified  pursuant to Section 3. In the case of death,
exercise may be made by the Optionee's Designated Beneficiary (as defined in the
Plan).
                  (c) If  Optionee's  position  as  Chairman  of the Board shall
terminate  for any reason  other than  cause,  death,  Disability,  or Change in
Control (as defined in the Compensation  Agreement),  Optionee shall be entitled
to  exercise  this  Option to the  extent  that the Option has vested and become
exercisable  pursuant to Section 3 above,  at any time,  or from time to time so
long as Optionee continues to serve as a director of the Company or within three
months after the date of termination of his directorship,  but in no event later
than the expiration date specified pursuant to Section 3.

         7. General Restriction. This Option shall be subject to the requirement
that if at any time the Board of Directors  in its  discretion  shall  determine
that the listing,  registration or  qualification  of the shares subject to such
Option on any  securities  exchange  or under any state or federal  law,  or the
consent or approval of any government regulatory body, is necessary or desirable
as a condition  of, or in  connection  with,  the granting of such Option or the
issuance or purchase of shares  thereunder,  such Option may not be exercised in
whole or in part unless such listing,  registration,  qualification,  consent or
approval  shall  have been  effected  or  obtained  free of any  conditions  not
acceptable to the Board of Directors.

         8. Option Adjustments. In the event of a stock dividend, stock split or
other  change in  corporate  structure or  capitalization  affecting  the common
shares or any other transaction (including, without limitation, an extraordinary
cash dividend) which, in the  determination  of the Compensation  Committee (the
"Committee")  of the Board of Directors,  affects the common shares such that an
adjustment  is required in order to preserve the benefits or potential  benefits
intended to be made available under the Plan, then the Committee shall equitably
adjust any or all of (i) the number and kind of shares  subject to this  Option,
and (ii) the purchase  price with respect to the  foregoing,  provided  that the
number of shares  subject to this Option shall always be a whole number.  In the
event of any tender offer or exchange offer (other than an offer by the Company)
for the Company's common shares, or a dissolution or liquidation of the Company,
or a merger or consolidation or similar  transaction in which the Company is not
the  surviving  company,  or a sale,  exchange  or other  disposition  of all or
substantially  all of the Company assets,  or a Change in Control of the Company
(as defined in the Compensation Agreement),  Optionee shall automatically become
fully vested in this Option and this Option shall become fully exercisable.
<PAGE>

         9.  Amendment to this Option  Agreement.  The  Committee  may modify or
amend this Option if it determines,  in its sole  discretion,  that amendment is
necessary or advisable in the light of any addition to or change in the Internal
Revenue Code or in the regulations  issued  thereunder,  or any federal or state
securities  laws or other law or regulation,  which change occurs after the Date
of Grant of this Option and by its terms applies to this Option. No amendment of
this Option, however, may, without the consent of the Optionee, make any changes
which would adversely effect the rights of such Optionee.

         10.  Notices.  Notices  hereunder  shall  be in  writing  and if to the
Company shall be delivered  personally to the Secretary of the Company or mailed
to its principal office, 675 Basket Road, P.O. Box 448, Webster, New York 14580,
addressed to the  attention of the Secretary  and, if to the Optionee,  shall be
delivered personally or mailed to the Optionee at Optionee's address as the same
appears on the records of the Company.

         11.   Interpretations   of   this   Agreement.    All   decisions   and
interpretations  made by the  Committee  with  regard  to any  question  arising
hereunder or under the Plan shall be binding and  conclusive  on the Company and
the Optionee.  The Option granted hereunder,  and the common shares which may be
issued upon exercise thereof,  are subject to the provisions of the Plan. In the
event there is any  inconsistency  between the  provisions of this Agreement and
those of the Plan, the provisions of the Plan shall govern.

         12. Successors and Assigns.  This Agreement shall bind and inure to the
benefit of the parties hereto and the successors and assigns of the Company and,
to the extent provided in Section 6, to the personal  representatives,  legatees
and heirs of the Optionee.


<PAGE>


         IN WITNESS WHEREOF,  the Company has caused this Option Agreement to be
executed on the day and year first above written.

                                 PSC INC.

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

/s/ Martin S. Weingarten
Martin S. Weingarten, Secretary


<PAGE>

                                   ACCEPTANCE

         I,  ROBERT  S.  EHRLICH,  hereby  certify  that I have  read and  fully
understand the foregoing Stock Option Agreement.  I acknowledge that I have been
apprised that it is the intent of the Company that  Optionees  obtain and retain
an equity  interest in the Company.  I hereby execute this Agreement to indicate
my acceptance of this Option and my intent to comply with the terms thereof.


                                   -------------------------------------
                                   Optionee


                                   ------------------------------------
                                   Street Address


                                   ------------------------------------
                                   City              State          Zip



<PAGE>

                                    EXHIBIT A

                                              _________________, 19__

PSC Inc.
675 Basket Road
P.O. Box 448
Webster, New York  14580

Attention:  Secretary

Dear Sir:

         This is to notify you that I hereby elect to exercise my option  rights
to common shares of PSC Inc. (the "Company")  granted under the Option Agreement
(the "Agreement"),  dated , 19__, issued to me pursuant to the 1994 Stock Option
Plan (the "Plan").  The purchase price pursuant to such Agreement,  as adjusted,
is $____________ per share or $__________ in the aggregate.

         In payment of the full purchase  price, I enclose  (please  complete as
appropriate):

         (a)      my check in the sum of $__________

         (b)      __________  common  shares of the Company  owned by me free of
                  any liens or  encumbrances  and having a fair market  value of
                  $_________

         (c)      an authorization  letter which gives irrevocable  instructions
                  to the Company to deliver the stock certificates  representing
                  the shares for which the option is being exercised directly to
                  _____________  (name and  address of broker)  together  with a
                  copy of the instructions to  _______________  (name of broker)
                  to sell such  shares and  promptly  deliver to the Company the
                  portion of the proceeds  equal to the total purchase price and
                  withholding taxes due, if any.

                                Very truly yours,



                                ------------------------------------
                                Optionee's Signature