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                                                                  Exhibit 10.16

                         EARLY RETIREMENT AGREEMENT AND RELEASE
                                       

        The Penn Traffic Company, including all of its divisions (hereinafter
    referred to as "Penn Traffic" or the "Company"), and John T. Dixon
    ("Employee"), of 37 West Lake Road, Skaneateles, New York 13152, hereby
    enter into this EARLY RETIREMENT AGREEMENT AND RELEASE ("Agreement"),
    effective September 3, 1996, and the Company and Employee each hereby agree
    as follows:

        1.    The Employee will be entitled to all employee benefits,
    including, but not limited to pension, for the period through January 17,
    1998, which shall be considered his normal retirement date.

        2.    The Employee's last day of active employment with the Company is
    September 30, 1996.  The Employee hereby resigns as a Director of the
    Company, effective September 3, 1996, and as an Officer of the Company and
    all of its subsidiaries and divisions on which he serves, including as a
    director, effective September 30, 1996,

        3.    The terms and conditions of this Agreement have been fully
    explained to the Employee.

        4.    The Employee has been advised that he may take up to twenty-one
    (21) days to review and consider entering into this Early Retirement
    Agreement and Release and has been advised that he may consult with an
    attorney or anyone of his choosing and, by executing same, has decided he
    wants to sign it.

        5.    The Employee is entitled to change his mind and revoke this
    Agreement within seven (7) days of signing it.  This Agreement will not
    become effective until the eighth (8th) day after he signs it.

        6.    In consideration of the execution by the Employee of this Early
    Retirement Agreement and Release and compliance with the promises made
    herein, the Company will pay the Employee the following amounts and provide
    the following benefits:

              (a)  Salary Continuation.  The Employee shall receive a sum 
    equal to his weekly salary for the period through January 17, 1998, with 
    normal payroll deductions being withheld.  This sun shall be paid as 
    follows:

                   (1)  $365,000, with normal payroll deductions being        
              withheld, within fourteen (14) days of the execution of this 
              Early Retirement Agreement, and

                   (2)  the balance in weekly payments of $2,622.86 through
              January 17, 1998, with normal payroll deductions being withheld.
         
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              (b)  Insurance Benefits:

                   (1)  The Company will provide coverage for the Employee and 
              his spouse in the Company Health Care Plan for the period through
              November 30, 2004, or until the Employee becomes employed and has
              comparable insurance coverage.  Such coverage will be subject to 
              the same terms and conditions that apply to all non-union covered
              employees of the Company.  After November 30, 2004, the Company 
              will extend the Company's group health care benefits to Employee 
              and his spouse, at his cost, but at Company's group rate, as 
              provided under COBRA, if the Employee does not already have 
              insurance coverage through a new employer.

                   (2)  The Company will provide group term life insurance in 
              the amount of $500,000 for the Employee for the period through
              November 30, 1999.

              (c)  Incentive Compensation.  The Employee will be eligible for a
    prorated Incentive Compensation Bonus for Calendar 1996.  Penn Traffic
    agrees to pay the Employee said applicable Calendar 1996 bonus, if any,
    minus withholding and other normal deductions, all in accordance with the
    terms and provisions of the Penn Traffic Incentive Compensation Plan.  The
    Employee shall not be eligible for any Incentive Compensation for any
    period after September 30, 1996.

              (d)  Stock Options.  The Employee shall have, unless earlier
    terminated pursuant to the normal terms of the Plan, until January 17,
    2003, whichever occurs first, to exercise any of his stock options, as
    applicable under the respective Stock Option Plans.

              (e)  Restricted Stock.  The Employee shall continue to retain his
    27,500 shares of restricted stock, which shall not terminate as a result of
    this resignation and early retirement.  The Employee shall not be entitled
    to any loan from the Company under any circumstances, and the restricted
    stock shall otherwise be governed by the terms and conditions of The Penn
    Traffic Company 1993 Long Term Incentive Plan as though the Employee were
    still employed by the Company.

              (f)  Company Vehicle.  The Employee agrees to return all gas, 
    credit and other cards associated with the Company vehicle to the Company 
    on or before September 30, 1996.  The Company shall transfer ownership of 
    the 1995 Cadillac which has been assigned to the Employee as a Company car
    within thirty (30) days of the execution of this Early Retirement
    Agreement.  The book value of this car at that time, approximately $30,000,
    will be reported as compensation to the Employee on his W-2 Form for 1996.

              (g)  Moving Expenses.  The Employee intends to sell his residence
    in Skaneateles, New York and plans on moving to the State of Tennessee.  
    The Company agrees to reimburse the Employee in connection with real estate
    brokers' commissions, attorneys' fees, other related expenses with regard
    to the sale of his Skaneateles, New 

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    York residence and transportation and moving expenses to the State of
    Tennessee up to an aggregate amount not to exceed $35,000,

              (h)  Pension.  The Employee is eligible under the Company's 
    Supplemental Retirement Income Plan to receive an annual pension benefit 
    for an eligible Employee with at least thirty (30) years of credited 
    service equal to forty percent (40%) of the yearly average of the highest 
    aggregate compensation received by the Employee during a period of five 
    (5) consecutive years of employment, less offsets for benefits paid under 
    the Company's other retirement plans and for Social Security benefits.

        7.   The Employee acknowledges that he knows there are various State
    and Federal laws which prohibit employment discrimination on the basis of
    race, color, creed, sex, age, national origin, marital status, religion,
    disability or veteran status.

         In consideration for the Company's making the payments listed in this
    Agreement, which it is not otherwise required to make, the Employee intends
    to voluntarily give up any rights he may have under these or any other laws
    with respect to his employment with the Company or the retirement and
    termination of his employment, including his rights under the Age
    Discrimination in Employment Act and Title VII of the Civil Rights Act of
    1964.

        8.   The Employee agrees not to disclose, either directly or 
    indirectly, to any person or entity, any information whatsoever regarding
    the existence or substance of this Early Retirement Agreement and Release. 
    The Employee also agrees not to disclose, either directly or indirectly, to
    any person or entity, any information concerning the business, operations
    or condition (financial or otherwise) of the Company.

         Employee will effect and will provide all reasonable cooperation in
    effecting a prompt and orderly transition of his responsibilities at the
    Company.  Employee agrees to cooperate fully with the Company in connection
    with litigations, arbitrations and governmental or other proceedings to
    which the Company is or may be from time to time a party, without
    compensation, provided that the Company's requests for such cooperation are
    reasonable under the circumstances.

        9.   The Employee hereby agrees that he will not compete in any
    capacity whatsoever, directly or indirectly, with the Company in any area
    in which the Company presently conducts its business for the period through
    January 17, 2000.  In the event Employee breaches this Agreement, he shall
    no longer be entitled to any of the benefits and payments set forth in this
    Agreement.

        10.  In exchange for the payments the Employee will receive under this
    Early Retirement Agreement and Release, the Employee, on behalf of himself,
    his heirs, executors, administrators, successors and assigns, hereby
    releases and forever discharges the Company from any and all causes of
    action, charges or claims and/or damages of any kind arising out of
    employment, including the January 29, 1995 Employment Agreement between the
    Employee and the Company, and retirement from the beginning of his
    employment to and including the effective date of this Agreement.  This
    includes, but is not limited to, claims arising under the 


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    Federal Age Discrimination in Employment Act of 1967 and Title VII of the
    Civil Rights Act of 1964, as amended, and claims of discrimination based on
    race, creed, color, sex, age, national origin, disability or marital
    status.

         11.  This Early Retirement Agreement and Release sets forth the entire
    agreement between the Company and the Employee and shall supersede any and
    all prior agreements or understandings between the parties, except as
    otherwise specified in this Early Retirement Agreement and Release.  It may
    not be amended, except by a written agreement signed by both parties.

         12.  BY SIGNING THIS AGREEMENT AND GENERAL RELEASE AND WAIVER, THE
    EMPLOYEE STATES THAT:  HE HAS READ IT; HE UNDERSTANDS IT; HE AGREES WITH
    EVERYTHING IN IT; HE WAS TOLD, IN WRITING, TO CONSULT AN ATTORNEY BEFORE
    SIGNING IT; HE HAS BEEN GIVEN TWENTY-ONE (21) DAYS TO REVIEW THE AGREEMENT
    AND TO THINK ABOUT WHETHER OR NOT HE WANTS TO SIGN IT; AND HAS SIGNED IT
    KNOWINGLY AND VOLUNTARILY.

                                  THE PENN TRAFFIC COMPANY
                                  
                                  
                                  
                                  By: /s/ Gary D. Hirsch    
                                      ----------------------
                                     Gary D. Hirsch, Chairman
AGREED:



/s/ John T. Dixon  
--------------------
John T. Dixon

Dated:  October 5, 1996
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