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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-Q/A



(Mark One)

           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended July 4, 1997

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                           Commission File No. 0-9919

                                    PSC INC.
             (Exact name of Registrant as Specified in Its Charter)

              New York                                              16-0969362
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                              Identification No.)


675 Basket Road, Webster, New York                                    14580
(Address of principal executive offices)                           (Zip Code)
                               (716) 265-1600
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 12 months  preceding  (or for such shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|

As of August 4, 1997, there were 11,200,689 shares of common stock outstanding.
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<PAGE>


                                     Part II

                                Other Information

Item 6. Exhibits and Reports on Form 8-K

         10.5  Amendment  Three dated as of August 13, 1997 to the
               Credit  Agreement dated as of July 12, 1996, among
               PSC Scanning,  Inc., as Borrower,  PSC Inc., the
               financial institutions party thereto and Fleet Bank as
               Initial issuing Bank and as Administrative Agent.

         10.6  Amendment No. 3 to Securities Purchase Agreements and
               Warrants  dated as of August 18,  1997 among
               PSC  Inc.,   PSC  Scanning,   Inc.  and  the
               Purchasers named in the Securities  Purchase
               Agreements.


<PAGE>


SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                            PSC, Inc.


DATE:  August 26, 1997     By: /s/  Robert C. Strandberg
                                    Robert C. Strandberg
                                    President and Chief Executive Officer



DATE:  August 26, 1997     By:  /s/ William J. Woodard
                                    William J. Woodard
                                    Vice President and Chief Financial Officer



DATE:  August 26, 1997     By:  /s/ Scott D. Deverell
                                    Scott D. Deverell
                                    (Principal Accounting Officer)






<PAGE>



                                                                  Exhibit 10.5

                               AMENDMENT THREE TO
                         CREDIT AGREEMENT (WITH CONSENT)


         THIS  AMENDMENT  THREE is dated as of  August  13,  1997 and is made in
respect of the Credit  Agreement dated as of July 12, 1996 and as amended and in
effect  immediately  prior to the date hereof (the  "Credit  Agreement")  by and
among PSC SCANNING,  INC., a Delaware corporation formerly known as SpectraScan,
Inc., which is successor by merger to PSC Acquisition,  Inc., (the  "Borrower"),
PSC INC. ("PSC"), the financial  institutions party to the Credit Agreement (the
"Lender Parties"),  FLEET BANK as the "Initial Issuing Bank", and FLEET BANK, as
administrative agent (the "Administrative Agent") under the Credit Agreement.

                            Statement of the Premises

         The Borrower, PSC, the Lender Parties, the Initial Issuing Bank and the
Administrative  Agent previously entered into the Credit Agreement and the First
Amendment to Credit  Agreement  dated as of September 27, 1996 and the Amendment
Two and Waiver dated as of July 4, 1997.  The Borrower  has  requested  that the
Lender  Parties amend certain  provisions  in the Credit  Agreement.  The Lender
Parties are willing to do so upon certain conditions.

                           Statement of Consideration

         Accordingly,  in consideration of the premises, and under the authority
of Section  5-1103 of the New York General  Obligations  Law, the parties hereto
agree as follows.

                                    Agreement

1.       Defined Terms.  The terms "this Agreement", "hereunder" and similar
references in the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.  Capitalized terms used and
not otherwise defined herein shall have the meanings
ascribed to such terms in the Credit Agreement.

2.       Amendment.  Effective as of July 4, 1997, upon the satisfaction
of all conditions set forth in Section 4 hereof, the Credit
Agreement is hereby amended as follows:

         2.1  Section  1.01 of the  Credit  Agreement  is  amended by adding the
definitions of "Adjusted EBITDA",  "Adjusted Total Debt Ratio",  "Second Quarter
'97 Charge" and "Stock Sale Proceeds", as follows:

                  "Adjusted EBITDA" means, for any period,  the sum,  determined
         on a Consolidated  basis, of (a) net income (or net loss) plus: (i) the
         Second Quarter '97 Charge,  less (ii) for each fiscal  quarter  through
         the fiscal quarter ending December 31, 1998, that portion of the Second
         Quarter '97 Charge  actually  paid during such  period,  less (iii) any
         gain  arising  from a reversal of the Second  Quarter '97 Charge,  plus
         (iv) on the fiscal  quarter end date of  December  31,  1998,  the cash
         balance of the Second Quarter '97 Charge which the Borrower has not yet
         paid in cash but which the  Borrower  expects  to incur,  (b)  interest
         expense,  (c) income tax  expense,  (d)  depreciation  expense  and (e)
         amortization  expense  in  each  case  of  PSC  and  its  Subsidiaries,
         determined in accordance with GAAP for such period.

                  "Adjusted  Total Debt Ratio" means,  at any date, the ratio of
         the aggregate  amount of Debt of PSC and its  Subsidiaries  on the last
         day  of  the  most  recently   completed   fiscal  quarter  of  PSC  to
         Consolidated  Adjusted  EBITDA  for the most  recently  completed  four
         fiscal quarters of PSC; provided,  however, that for purposes solely of
         calculating  the  aggregate  amount of Debt  outstanding,  the  Working
         Capital  Advances  shall be deemed to be  outstanding  in an  aggregate
         principal amount equal to the average principal amount outstanding over
         the previous two full fiscal quarters.

                  "Stock Sale  Proceeds"  means the Net Cash  Proceeds  from the
         proposed sale of shares of the Series A Convertible  Preferred Stock of
         PSC  pursuant to the  commitment  dated August 5, 1997 issued by Romano
         Volta to PSC.

                  "Second Quarter '97 Charge" means the charge to earnings taken
         by the Borrower in its second  fiscal  quarter in 1997 in the aggregate
         amount  of  $5,221,000  as  a  result  of,  among  other  things,   the
         resignation  of L.  Michael  Hone and  several  other  executives  from
         employment with PSC and its subsidiaries and affiliates, centralization
         of research  and  development,  reorganization  of the  domestic  sales
         force,  downsizing of some foreign sales office staffs,  discontinuance
         of certain products, and consolidation of manufacturing.

         2.2      Section 1.02 of the Credit Agreement is amended by adding the
following sentence at the end thereof:

         All specified  fiscal  quarter  end-dates in this Credit  Agreement are
         approximate  and shall be deemed to refer to the actual fiscal  quarter
         end-dates of PSC and the Borrower, as applicable, most nearly occurring
         on such specified dates.

         2.3 The last sentence of Clause (ii) of Subsection  (b) of Section 2.06
of the Credit Agreement is amended by adding the following at the end thereof:


<PAGE>



         ;  provided,  however,  that the Stock Sale  Proceeds  shall be applied
         first to the Working Capital Facility as set forth in clause (vi) below
         and second, the balance, if any, ratably to the Term A Facility and the
         Term B  Facility  and to  the  installments  thereof  in the  order  of
         maturity.

         2.4      Section 5.04 of the Credit Agreement is amended to read in
its entirety as follows:

FinancialCovenants.  So long as any Advance shall remain  unpaid,  any Letter of
         Credit  shall  be  outstanding  or any  Lender  Party  shall  have  any
         Commitment hereunder, PSC will:

                  (a) Fixed Charge Coverage  Ratio.  Maintain at the end of each
         fiscal quarter of PSC a ratio of (i)  Consolidated  Adjusted EBITDA for
         the most recently  completed four fiscal  quarters of PSC, less Capital
         Expenditures  made during such  period,  less the  aggregate  amount of
         federal,   state,   local  and  foreign  taxes  paid  by  PSC  and  its
         Subsidiaries  during such  period to the (ii) sum of (w) cash  interest
         payable by PSC and its Subsidiaries on all Debt during such period plus
         (x) cash rentals  payable under  Capitalized  Leases during such period
         plus (y) principal amounts of all Funded Debt payable, in each case, by
         PSC and its  Subsidiaries  during such  period,  excluding  payments or
         prepayments  of any Borrowing  with the Stock Sale Proceeds  other than
         (and not  excluding)  payments  scheduled to be due and payable  during
         such period,  if any (without the application of Section  2.06(b)(ii)),
         plus (z) the aggregate  purchase price paid by PSC and its Subsidiaries
         during such period to purchase  capital  stock of PSC as  permitted  by
         Section  5.02(g),  of not less than the ratio set forth  below for such
         period:

                  Four Fiscal Quarters Ending        Ratio

                                    9/30/97          1.15x
                                    12/31/97         1.15x
                                    3/31/98          1.15x
                                    6/30/98          1.15x
                                    9/30/98          1.15x
                                    12/31/98         1.15x
                  3/31/99 and each period thereafter 1.25x


<PAGE>



                  (b)      Adjusted Total Debt Ratio.  Maintain at the end of
          each fiscal quarter of PSC an Adjusted Total Debt Ratio
          for such date of not more than the amount set forth below for such
          period;

                  Four Fiscal Quarters Ending        Ratio

                                    9/30/97          4.25x
                                    12/31/97         4.25x
                                    3/31/98          3.75x
                                    6/30/98          3.75x
                                    9/30/98          3.75x
                                    12/31/98         3.75x
                           3/31/99 and thereafter    3.25x

                  (c) Senior Debt to Adjusted EBITDA Ratio.  Maintain at the end
         of each  fiscal  quarter  of PSC a ratio of Senior  Debt of PSC and its
         Subsidiaries  outstanding  on the last day of such  fiscal  quarter  to
         Consolidated  Adjusted  EBITDA  for the most  recently  completed  four
         fiscal  quarters  of PSC of not more than the ratio set forth below for
         such period:

                  Four Fiscal Quarters Ending        Ratio

                                    9/30/97          3.Ox
                                    12/31/97         3.Ox
                                    3/31/98          2.50x
                                    6/30/98          2.50x
                                    9/30/98          2.50x
                                    12/31/98         2.25x
                           3/31/99 and thereafter    2.Ox

                  (d) Interest  Coverage  Ratio.  Maintain as of the end of each
         fiscal quarter of PSC a ratio of (i)  Consolidated  Adjusted EBITDA for
         the  most  recently  completed  four  fiscal  quarters  of PSC to  (ii)
         Interest  Expense of PSC and its  Subsidiaries  for such  period of not
         less than the ratio set forth below for such period:



<PAGE>


                  Four Fiscal Ouarters Ending        Ratio

                                    9/30/97          2.50x
                                    12/31/97         2.50x
                                    3/31/98          3.Ox
                                    6/30/98          3.Ox
                                    9/30/98          3.Ox
                                    12/30/98         3.Ox
                           3/31/99 and thereafter    3.50x

                  "(e)  Net   Worth.   Maintain   at  all  times  an  excess  of
         Consolidated total assets over Consolidated total liabilities,  in each
         case, of the Borrower and its Subsidiaries of not less than (i) through
         September 30, 1997, the sum of: (A) $13,000,000, plus (B) the amount of
         the Stock Sale Proceeds, and (ii) after September 30, 1997, the sum of:
         (A) $13,000,000, plus (B) 75% of Consolidated net income of PSC and its
         Subsidiaries  (determined exclusive of any gain or loss, net of the tax
         effects thereof, recognized in connection with the sale of the stock of
         TxCom) for the period after  September 27, 1996 to and  including  each
         date of  determination  computed on a cumulative  basis for said entire
         period,  plus  (C) the  amount  of any  gain,  net of the  tax  effects
         thereof, recognized subsequent to September 27, 1996 in connection with
         the sale of the  stock of  TxCom,  plus (D) the  amount  of Stock  Sale
         Proceeds.

3. Consent to Sale of Stock.  The Lender  Parties  hereby consent to the sale of
shares  of the  Series A  Convertible  Preferred  Stock of PSC  pursuant  to the
commitment dated August 5, 1997 issued by Romano Volta to PSC.

4. Conditions Precedent to Effectiveness.  This Amendment Three shall not become
effective unless and until:: (a) the holders of the Subordinated Debt shall have
entered  into an  amendment  or waiver in  substantially  the form of  Exhibit A
annexed  hereto;  and (b) the  Borrower  shall  have  paid to the  Agent for the
account of each of the Lender Parties,  pro-rata  according to the amount of the
Commitment of each Lender Party, a fee equal to one-eighth of one percent of the
total amount of the Commitment.

5. Effect on the Credit  Agreement.  Except as specifically  amended above,  the
Credit  Agreement  shall remain in full force and effect and is hereby  ratified
and confirmed.  The Borrower and PSC each  acknowledge and agree that the Credit
Agreement (as amended by this  Amendment)  and each other Loan Document to which
each is a party is in full force and effect, that its Obligations thereunder and
under this  Amendment  are its legal valid and binding  obligations  enforceable
against  it in  accordance  with the terms  thereof  and  hereof,  and it has no
defense,  whether legal or equitable,  setoff or counterclaim to the payment and
performance of such Obligations.


<PAGE>



6.  Expenses.  The  Borrower  shall pay  promptly  when  billed  all  reasonable
out-of-pocket  expenses of each of the Lender Parties and the Agent  (including,
but not limited to,  reasonable  fees,  charges and  disbursements of counsel to
each  of the  Lender  Parties  and  the  Agent)  incident  to  the  preparation,
negotiation,  execution,  administration  and  enforcement of the this Amendment
Three and all  documents  and  transactions  required  in  connection  with this
Amendment Three.

7. Execution in  Counterparts  and  Effectiveness.  This Amendment  Three may be
executed in any number of  counterparts  and by the different  parties hereto on
separate counterparts,  each of which shall be deemed to be an original, and all
of which taken  together  shall  constitute  one and the same  Amendment  Three,
regardless  of whether or not the  execution by all parties  shall appear on any
single counterpart.  Delivery of an executed  counterpart of a signature page to
this Amendment Three by telecopier  shall be effective as delivery of a manually
executed  counterpart  of this  Agreement.  This  Amendment  Three  will  become
effective (subject to the condition precedent set forth in Section 4 above) when
the  Administrative  Agent shall have received  counterparts  of this  Amendment
Three which, when taken together,  bear the signatures of the Borrower, PSC, the
Administrative Agent and all of the Lenders.

8.  Applicable  Law.  Pursuant  to  Section  5-1401  of  the  New  York  General
Obligations  Law, the laws of the State of New York shall  govern the  validity,
construction,  enforcement and  interpretation  of this Amendment Three in whole
without  regard  to any  rules  of  conflicts-of-laws  that  would  require  the
application of the laws of any jurisdiction other than the State of New York.

9. Headings.  The headings of this Amendment Three are for the purposes of
reference only and shall not limit or otherwise affect the meanings hereof.

         IN WITNESS  WHEREOF,  the parties  hereto have caused a counterpart  of
this  Amendment  Three  to  be  executed  and  delivered  by  their   respective
representatives thereunto duly authorized, as of the date first above written.


PSC INC.                                      PSC SCANNING, INC.

By:                                           By:
Title:   Vice President, Finance &            Title:   Vice President and Chief
         Treasurer                                     Financial Officer



<PAGE>



FLEET BANK, as Initial Issuing Bank FLEET BANK, as Administrative Agent

By:                                                  By:
Title:                                               Title:


FLEET BANK                                           CORESTATES BANK, N.A.

By:                                                  By:
Title:                                               Title:


MANUFACTURERS & TRADERS                              KEY BANK NATIONAL
TRUST COMPANY                                        ASSOCIATION

By:                                                  By:
Title:                                               Title:



                                                     PILGRIM AMERICA PRIME RATE
SUMITOMO BANK                                        TRUST

By:                                                  By:
Title:                                               Title:




<PAGE>


                                                                  Exhibit 10.6


                                    PSC INC.
                               PSC SCANNING, INC.
                                 675 Basket Road
                             Webster, New York 14580



                                                               August 18, 1997


JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts  02117

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN NATIONAL INCOME FUND, INC.
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Ft. Wayne, Indiana  46802

SECURITY-CONNECTICUT CORPORATION
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
20 Security Drive
Avon, Connecticut  06001

THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
c/o Alliance Capital Management L.P.
1345 Avenue of the Americas, 37th Floor
New York, New York  10105

         Re:      Amendment No. 3 to Securities Purchase Agreements and Warrants

Ladies and Gentlemen:

         PSC INC.,  a New York  corporation  (the  "Holding  Company"),  and PSC
SCANNING, INC., a Delaware corporation (formerly named SpectraScan,  Inc.) and a
Wholly-Owned  Subsidiary of the Holding Company (the  "Operating  Company") (the
Holding Company and the Operating Company are sometimes collectively referred to
herein as the "Companies" and each as a "Company"),  jointly and severally agree
with you as follows:


<PAGE>



         1.  Definitions.  Reference is hereby made to those certain  Securities
Purchase  Agreements  dated July 12, 1996,  as amended by Amendment  No. 1 dated
October 10, 1996 and  Amendment  No. 2 and Waivers  dated as of July 4, 1997 (as
the same  may be  amended,  modified  or  supplemented  from  time to time,  the
"Securities  Purchase  Agreements"),  among the Holding  Company,  the Operating
Company and each of you.  Capitalized terms used herein without  definition have
the meanings ascribed to them in the Securities Purchase Agreements.

         2.       Amendments to the Securities Purchase Agreements.

                  (a) Section 7(c)(iii)(A) of the Securities Purchase Agreements
         is hereby amended by deleting the term "Consolidated  EBITDA" appearing
         therein and inserting "Consolidated Adjusted EBITDA" in place thereof.

                  (b)  Section   14.5(a)(v)(B)   of  the   Securities   Purchase
         Agreements  is  hereby  amended  by  deleting  the  term  "Consolidated
         Indebtedness   Ratio"   appearing   therein  and  inserting   "Adjusted
         Consolidated Indebtedness Ratio" in place thereof.

                  (c) Section 14.7 of the Securities Purchase Agreements is
         hereby amended to read in its entirety as follows:

        "14.7. Certain Financial Covenants. The Companies will, and will cause
their respective Subsidiaries to:

         (a) Fixed  Charge  Coverage  Ratio.  Maintain at the end of each fiscal
quarter of the Holding  Company  specified below in this section 14.7(a) a ratio
of (i) (x)  Consolidated  Adjusted  EBITDA for the most recently  completed four
fiscal  quarters of the  Holding  Company  less (y) the sum of (A)  Consolidated
Capital  Expenditures  made during such period plus (B) the aggregate  amount of
federal,  state,  local and foreign  taxes paid by the  Holding  Company and its
Subsidiaries  during such period to (ii) the sum of (w) cash interest payable by
the Holding Company and its  Subsidiaries on  Consolidated  Indebtedness  during
such period,  plus (x) cash rentals  payable  under  Capital  Leases during such
period,  plus (y) principal amounts of Consolidated Funded Debt and Current Debt
payable  by the  Holding  Company  and  its  Subsidiaries  during  such  period,
excluding  payments or  prepayments of Funded Debt and/or Current Debt under the
Bank  Credit  Agreement  with  the  Stock  Sale  Proceeds  other  than  (and not
excluding)  payments  scheduled to be due and payable during such period, if any
(without the application of Section  2.06(b)(ii) of the Bank Credit  Agreement),
plus (z) the  aggregate  purchase  price  paid by the  Holding  Company  and its
Subsidiaries  during such period to purchase Common Stock of the Holding Company
of not less than the ratio set forth below for such period:


<PAGE>


         Four Fiscal Quarters Ending                    Ratio

                  9/30/97                               1.01
                  12/31/97                              1.01
                  3/31/98                               1.01
                  6/30/98                               1.01
                  9/30/98                               1.01
                  12/31/98                              1.01
                  3/31/99 and the last day of
                  each fiscal quarter thereafter        1.15x

         (b) Adjusted  Consolidated  Indebtedness Ratio.  Maintain at the end of
each  fiscal  quarter of the Holding  Company  specified  below in this  section
14.7(b) an Adjusted  Consolidated  Indebtedness  Ratio for such date of not more
than the ratio set forth below for such period:

         Four Fiscal Quarters Ending                    Ratio

                  9/30/97                               4.75x
                  12/31/97                              4.75x
                  3/31/98                               4.25x
                  6/30/98                               4.25x
                  9/30/98                               4.25x
                  12/31/98                              4.25x
                  3/31/99 and the last day of
                  each fiscal quarter thereafter        3.75x

         (c) Senior Debt to Adjusted  EBITDA Ratio.  Maintain at the end of each
fiscal quarter of the Holding Company  specified below in this section 14.7(c) a
ratio of (i) Consolidated Senior Debt outstanding on the last day of such fiscal
quarter to (ii)  Consolidated  Adjusted  EBITDA for the most recently  completed
four  fiscal  quarters of the  Holding  Company,  of not more than the ratio set
forth below for such period:

         Four Fiscal Quarters Ending               Ratio

                  9/30/97                          3.50x
                  12/31/97                         3.50x
                  3/31/98                          3.00x
                  6/30/98                          3.00x
                  9/30/98                          3.00x
                  12/31/98                         2.75x
                  3/31/99 and the last day of
                  each fiscal quarter thereafter   2.50x


<PAGE>


         (d) Net Worth.  Maintain at all times an excess of  Consolidated  Total
Assets  over  Consolidated  Total  Liabilities  of not  less  than  (i)  through
September  30,  1997,  the sum of: (A)  $13,000,000,  plus (B) the amount of the
Stock  Sale  Proceeds,  and (ii)  after  September  30,  1997,  the sum of:  (A)
$13,000,000,   plus  (B)  50%  of  positive  Consolidated  Net  Income  (without
adjustment for any loss and determined exclusive of any gain or loss, net of the
tax effects  thereof,  recognized  in  connection  with the sale of the stock of
TxCom) for the period after  September  27, 1996 to and  including  each date of
determination  computed on a cumulative  basis for said entire period,  plus (C)
the amount of any gain, net of the tax effects thereof, recognized subsequent to
September 27, 1996 in connection  with the sale of the stock of TxCom,  plus (D)
the amount of Stock Sale Proceeds."

            (d) Section 15.1 of the Securities Purchase Agreements is hereby
amended to add the following definitions in appropriate alphabetical order:

         ""Adjusted  Consolidated  Indebtedness  Ratio" shall mean, at any date,
the  ratio of  Consolidated  Indebtedness  on the last day of the most  recently
completed fiscal quarter of the Holding Company to Consolidated  Adjusted EBITDA
for the most recently  completed  four fiscal  quarters of the Holding  Company,
provided that, for purposes solely of calculating  Consolidated  Indebtedness on
any day, the Working Capital Advances (as defined in the Bank Credit  Agreement)
shall be deemed to be outstanding in an aggregate  principal amount equal to the
average principal amount thereof outstanding during the two full fiscal quarters
of the Holding Company then ended."

         ""Adjusted  EBITDA" of any Person shall mean,  for any period,  the Net
Income of such  Person for such period  (plus (w) the Second  Quarter '97 Charge
minus (x) for each fiscal quarter through the fiscal quarter ending December 31,
1998,  that portion of the Second  Quarter '97 Charge  actually paid during such
period  minus (y) any gain  arising  from a reversal  of the Second  Quarter '97
Charge plus (z) on the fiscal  quarter end date of December 31,  1998,  the cash
balance of the Second Quarter '97 Charge which the Operating Company has not yet
paid in cash but which the Operating Company expects to incur),  after restoring
thereto  amounts  deducted  for (a)  Interest  Charges,  (b) taxes in respect of
income  and  profits,  and (c)  amortization  and  depreciation,  in  each  case
determined in accordance with GAAP, excluding, in the case of the fiscal quarter
in which the Acquisition is consummated,  any restructuring  charge taken by the
Holding Company and its Subsidiaries in connection with the Acquisition."

         ""Second Quarter '97 Charge" shall mean the charge to earnings taken by
the  Operating  Company in its second  fiscal  quarter in 1997 in the  aggregate
amount of $5,221,000 as a result of, among other things,  the  resignation of L.
Michael  Hone and several  other  executives  from  employment  with the Holding
Company and its  Subsidiaries  and  Affiliates,  centralization  of research and
development,  reorganization  of the domestic  sales force,  downsizing  of some
foreign   sales  office   staffs,   discontinuance   of  certain   products  and
consolidation of manufacturing."


<PAGE>


         ""Stock Sale Proceeds"  shall mean the cash proceeds (net of reasonable
and customary  fees and expenses  incurred in connection  therewith and actually
paid to  unaffiliated  third  parties)  from the proposed  sale of shares of the
Series A  Convertible  Preferred  Stock of the Holding  Company  pursuant to the
commitment dated August 5, 1997 issued by Romano Volta to the Holding Company."

                  (e) Section  15.1 of the  Securities  Purchase  Agreements  is
         hereby further  amended by revising the definition of the various terms
         using the word  "Consolidated"  which appears  beginning on page 51 and
         continuing  to page 52 to  insert  (i)  "Consolidated  Adjusted  EBITDA
         [14.7]" at the beginning  thereof,  (ii) "Adjusted EBITDA"  immediately
         before "EBITDA,  Funded Debt" and (iii)  "Consolidated  Adjusted EBITDA
         or"  immediately  before  "Consolidated  Net Income"  appearing  in the
         proviso therein.

                  (f) Section  15.1 of the  Securities  Purchase  Agreements  is
         hereby further  amended by deleting the  definitions  of  "Consolidated
         Indebtedness Ratio" and "EBITDA" appearing therein.

                  (g)      Section 15.3(a) of the Securities Purchase Agreements
is hereby amended by adding the following sentence at the end thereof:

"All specified  fiscal quarter end dates in this Agreement are  approximate  and
shall be deemed to refer to the actual  fiscal  quarter end dates of the Holding
Company and/or the Operating  Company,  as applicable,  most nearly occurring on
such specified dates."

         3.  Amendment  to the  Warrants  to Reduce  Exercise  Price and  Extend
Exercise  Period.  Each of the  Warrants is hereby  amended to provide  that the
Exercise  Price thereof is reduced from $9.48 to $8.00 per share (such  Exercise
Price being subject to further  adjustment as provided in the Warrants) and that
the Exercise  Period  therefor  terminates at 5:00 p.m. Boston time on September
15, 2006. The Holding Company hereby certifies that since July 12, 1996 no event
has occurred which,  under the terms of the Warrants,  requires an adjustment to
the Exercise Price or to the number or kind of securities issuable upon exercise
thereof.

         4.       Consent to and Acknowledgment of Issuance of Series A
Preferred Stock and Amendments to Bank Credit Agreement.

                  (a) Each of you  hereby  waives any  breach of  sections  11.6
         and/or 14.16(a) of the Securities Purchase Agreements arising solely on
         account of the sale of shares of Series A Convertible  Preferred  Stock
         of the Holding Company  pursuant to and upon the terms set forth in the
         commitment letter (and the term sheet attached thereto) dated August 5,
         1997  from  Romano  Volta to the  Holding  Company,  a copy of which is
         attached hereto as Exhibit A.


<PAGE>


                  (b) Each of you hereby  acknowledges  that section 14.16(c) of
         the Securities  Purchase  Agreements  permits the amendment of the Bank
         Credit  Agreement as provided for in that  certain  Amendment  Three to
         Credit  Agreement (With Consent) dated as of August 13, 1997, among the
         Holding  Company,  the Operating  Company,  the financial  institutions
         party thereto, Fleet Bank, as Initial Issuing Agent, and Fleet Bank, as
         administrative  agent,  substantially  in the form  attached  hereto as
         Exhibit B.

         5.       No Default, Representations and Warranties, etc.

                  (a) The  Companies  represent  and  warrant  that,  except  as
         otherwise  modified by (i) the Holding  Company's  (A) Annual Report on
         Form 10-K for the fiscal year ended  December 31, 1996,  including  all
         exhibits and appendices thereto,  (B) Quarterly Report on Form 10-Q for
         the  quarter  ended April 4, 1997,  and (C) Current  Report on Form 8-K
         filed with the  Commission on May 7, 1997,  true,  correct and complete
         copies  of which  have  been  furnished  to you , (ii) the  projections
         referred  to on Exhibit B attached  to  Amendment  No. 2 and Waivers to
         Securities  Purchase Agreements dated as of July 4, 1997, and (iii) the
         information  delivered to the  Purchasers  on June 11,  1997,  which is
         attached  to  Amendment  No.  2  and  Waivers  to  Securities  Purchase
         Agreements  dated as of July 4, 1997 as Exhibit C, the  representations
         and warranties  contained in the Securities Purchase Agreements and the
         other Operative  Documents are in all material  respects correct on and
         as of the date  hereof as if made on such date  (except  to the  extent
         affected  by  the   consummation  of  transactions   permitted  by  the
         Securities  Purchase  Agreements) and that,  after giving effect to the
         provisions  of this  Letter  Agreement,  no Default or Event of Default
         exists.

                  (b) The  Companies  each  ratify and  confirm  the  Securities
         Purchase Agreements (as amended hereby) and each of the other Operative
         Documents to which each is a party and agree that each such  agreement,
         document  and  instrument  is  in  full  force  and  effect,  that  its
         obligations  thereunder and under this Letter  Agreement are its legal,
         valid and binding obligations enforceable against it in accordance with
         the terms thereof and hereof and that it has no defense,  whether legal
         or equitable,  setoff or counterclaim to the payment and performance of
         such obligations.

                  (c) The Companies  agree that (i) if any default shall be made
         in  the  performance  or  observance  of  any  covenant,  agreement  or
         condition  contained  in this  Letter  Agreement  or in any  agreement,
         document  or  instrument  executed in  connection  herewith or pursuant
         hereto or (ii) if any  representation or warranty made by the Companies
         herein or therein  shall prove to have been false or  incorrect  on the
         date as of which made,  the same shall  constitute  an Event of Default
         under  the  Securities  Purchase  Agreements  and the  other  Operative
         Documents  and, in such event,  you and each other holder of any of the
         Notes  shall  have all  rights  and  remedies  provided  by law  and/or
         provided or referred to in the

<PAGE>


         Securities Purchase Agreements and the other Operative  Documents.  The
         Companies  further  agree that this Letter  Agreement  is an  Operative
         Document  and  all  references  thereto  in  the  Securities   Purchase
         Agreements  and in any other of the  other  Operative  Documents  shall
         include this Letter Agreement.

         6.       Payment of Transaction Costs.  The Companies shall pay all
reasonable fees and disbursements incurred by you in connection herewith,
including, without limitation, the reasonable fees, expenses and disbursements
of your special counsel.

         7. Governing Law. This Letter Agreement,  including the validity hereof
and the rights and obligations of the parties  hereunder,  shall be construed in
accordance  with and governed by the domestic  substantive  laws of the State of
New  York  without  giving  effect  to any  choice  of law or  conflicts  of law
provision or rule that would cause the  application of the domestic  substantive
laws of any other jurisdiction.

         8.  Miscellaneous.  The  headings  in  this  Letter  Agreement  are for
purposes of reference  only and shall not limit or otherwise  affect the meaning
hereof.  This Letter Agreement  embodies the entire agreement and  understanding
among the parties hereto and supersedes all prior agreements and  understandings
relating to the subject  matter  hereof.  In case any  provision  in this Letter
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  This  Letter  Agreement  may be  executed  in any  number of
counterparts  and by the parties  hereto on separate  counterparts  but all such
counterparts shall together constitute but one and the same instrument.


            [The remainder of this page is intentionally left blank.]


<PAGE>


         If you are in  agreement  with the  foregoing,  please sign the form of
agreement  on  the  accompanying   counterpart  hereof,  whereupon  this  Letter
Agreement shall become a binding  agreement under seal among the parties hereto.
Please then return one of such counterparts to the Companies.

                                            Very truly yours,

                                            PSC INC.



                                            By:____________________________
                                                                   (Title)


                                            PSC SCANNING, INC.



                                            By: _____________________________
                                                                   (Title)

         Each of the undersigned (a)  acknowledges  and assents to the terms and
provisions of the foregoing  Letter Agreement and (b) ratifies and confirms each
of the  Operative  Documents  to which it is a party and  agrees  that each such
Operative Document is in full force and effect, that its obligations  thereunder
are  its  legal,  valid  and  binding  obligations  enforceable  against  it  in
accordance  with the terms thereof and that it has no defense,  whether legal or
equitable,  setoff or  counterclaim,  to the  payment  and  performance  of such
obligations.

                                            INSTAREAD CORPORATION


                                            By:____________________________
                                                                 (Title)


                                            PSC AUTOMATION, INC.
                                            (formerly named Laserdata
                                             Corporation)



                                            By: _____________________________
                                                                  (Title)


<PAGE>


                                            LASERDATA HOLDINGS, INC.



                                            By:_____________________________
                                                                   (Title)


                                            PSC S.A., INC.



                                            By:_____________________________
                                                                  (Title)


                                            PSC SCANNING SYSTEMS, INC.



                                            By:_____________________________
                                                                 (Title)


The foregoing is hereby accepted and agreed to:

JOHN HANCOCK MUTUAL LIFE
   INSURANCE COMPANY



By:  _____________________________
                       (Title)


JOHN HANCOCK VARIABLE LIFE
   INSURANCE COMPANY



By:  _______________________________
                       (Title)


<PAGE>


THE LINCOLN NATIONAL LIFE
   INSURANCE COMPANY

By:    Lincoln Investment Management, Inc.
       Its Attorney-in-Fact



By:  ___________________________
                      (Title)


LINCOLN NATIONAL INCOME FUND, INC.



By:  _____________________________
                      (Title)


RELIASTAR FINANCIAL CORP., as successor
   to Security-Connecticut Corporation



By:  _______________________________
                      (Title)


SECURITY-CONNECTICUT LIFE
   INSURANCE COMPANY



By:  _______________________________
                      (Title)


THE EQUITABLE LIFE ASSURANCE
   SOCIETY OF THE UNITED STATES


By:  _______________________________
                      (Title)