**EXHIBIT10.36****SEPARATION AGREEMENT AND RELEASE**     THIS SEPARATION AGREEMENT AND RELEASE (the “Agreement”) is entered into by John J. Lennon(hereinafter referred to as “Employee”) and Pyramid Breweries Inc., its affiliates, officers,directors and managers (hereinafter referred to as “Pyramid”).**RECITALS**     A. Employee has been employed by Pyramid in the position of President and Chief ExecutiveOfficer, and Employee’s employment at Pyramid will terminate effective June 30, 2006 (the“Termination Date”).     B. Employee and Pyramid are parties to that certain Employment Agreement dated as of July 15,2004 (the “Employment Agreement”). This Agreement is entered into pursuant to Section 12(a)(i) ofthe Employment Agreement.     C. Each of the undersigned parties to this Agreement has had ample opportunity to review thefacts and law relevant to this issue, has consulted fully and freely with competent counsel of itschoice if desired, and has entered this Agreement knowingly and intelligently without duress orcoercion from any source. Employee has had a reasonable time in which to consider whether hewished to sign this Agreement.**AGREEMENTS**     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises containedbelow, it is agreed as follows:     **1. EMPLOYMENT: ENDING DATE AND RESPONSIBILITIES**     Employee’s employment with Pyramid will end effective as of June 30, 2006. Effective thatdate, he has no further employment duties to Pyramid other than those duties which survive hisseparation from employment under the confidentiality, unfair competition and nonraiding ofemployees provisions in Paragraphs 13 and 15 of the Employment Agreement.     **2. CONSIDERATION**     In exchange for the promises contained in Paragraph 3 below, Pyramid will provide Employeewith the payments and benefits provided under the Employment Agreement:     (a) Employee’s salary (less customary withholdings for taxes and health benefits), carallowance, and medical, dental and eye coverage (“health benefits”) through July 14, 2006 (pursuantto Section 12(a)(ii) of the Employment Agreement;     (b) One year’s salary ($260,000), less customary withholdings for taxes and health benefits,for the period from July 15, 2006 through July 15, 2007 (pursuant to Section 12(a)(i) of theEmployment Agreement);
 

 
     (c) 35,000 shares of Pyramid’s common stock (pursuant to Section 5(c)(i) and (ii) of theEmployment Agreement); and     (d) Continuation, at Pyramid’s cost, of Pyramid’s health benefits, including medical, dentaland eye care, to Employee and his qualifying family members through July 15, 2007, with continuingCOBRA eligibility thereafter.     In addition, Pyramid acknowledges and agrees that the forfeiture restrictions contemplated inSection 5(c) of the Employment Agreement shall not apply to the 35,000 shares referred to inSection 2(c) above and shall lapse with respect to the 70,000 shares of Pyramid common stock thatwere granted to Employee under Section 5(c) of the Employment Agreement as of January 1, 2006 (the“2006 Shares”). Pyramid agrees to promptly issue, or cause to be issued, the shares referred to inSection 2(c) above and to reissue, or cause to be reissued, the 2006 Shares without the legendsrelating to forfeiture restrictions that were contained on the certificates evidencing such shares.     In addition to the compensation referred to above, Employee shall be entitled to (i) paymentfor Employee’s earned but unused vacation through July 14, 2006, less customary tax and otherwithholdings, and (ii) Employee’s 2005 bonus pursuant to the Officer Incentive Compensation Plan(“2005 OICP”) in the amount of $87,164, less customary tax and other withholdings.     As contemplated in the Company’s 2006 Officer Incentive Compensation Plan (“2006 OICP”), ifthe performance goals under the 2006 OICP relating to the incentive compensation of the CEO (“CEOBonus”) are actually achieved for 2006, Employee shall be entitled to one-half of the CEO Bonus,payable at the same time as bonuses to other management employees are made under the 2006 OICP.Pyramid shall not amend the 2006 OICP in a manner which adversely affects the Employee without theEmployee’s prior written consent.     Employee shall be entitled to retain the Pyramid laptop computer and cell phone previouslyused by Employee in the course of his employment, along with continued rights to use the celltelephone number, with Employee bearing all related expenses after July 14, 2006. Employeeunderstands and acknowledges that all information and data of any nature whatsoever belonging toPyramid or relating to its business shall be removed from the laptop and cell phone and Employeeshall cooperate with Pyramid to ensure that such removal is effected.     Employee and Pyramid agree that the consideration set forth above is the consideration offeredfor this release in Paragraph 12 the Employment Agreement, and is not required by Pyramid’spolicies or procedures or by any other preexisting contractual obligation of Pyramid or by anystatute, regulation or ordinance, and is offered by Pyramid solely as consideration for thisAgreement.     **3. GENERAL RELEASE OF CLAIMS**     Except for claims arising from the provisions of this Agreement, Employee expressly waives anyclaims against Pyramid (including, for purposes of this Paragraph 3, all affiliates,
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subsidiaries, officers, directors, managers, employees, agents, assigns and representatives)and releases Pyramid (including its affiliates, subsidiaries, officers, directors, managers,employees, agents, assigns and representatives) from any claims, whether known or unknown, whichexisted or may have existed at any time up to the date of this Agreement, including claims relatedin any way to Employee’s employment with Pyramid or the ending of that relationship. Except asexpressly set forth in this Agreement, this release includes, but is not limited to, any claims forwages, bonuses, employment benefits, or damages of any kind whatsoever, arising out of any commonlaw torts, arising out of any contracts, express or implied, any covenant of good faith and fairdealing, express or implied, any theory of wrongful discharge, any theory of negligence, any theoryof retaliation, any theory of discrimination or harassment in any form, any legal restriction onPyramid’s right to terminate employees, or any federal, state, or other governmental statute,executive order, or ordinance, including, without limitation, Title VII of the Civil Rights Act of1964 as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866, 42 U.S.C. § 1981, theAmericans with Disabilities Act, the Age Discrimination in Employment Act (ADEA), the Older WorkersBenefit Protection Act, the Family and Medical Leave Act, the Employee Retirement Income SecurityAct, the Washington Law Against Discrimination, or any other legal limitation on or regulation ofthe employment relationship. The waiver and release of claims under the ADEA contained in thisAgreement does not cover rights or claims that may arise after the date on which Employee signsthis Agreement. Employee hereby acknowledges and agrees that his knowing and voluntary waiver andrelease of his rights and claims in exchange for consideration (something of value) that is inaddition to anything of value to which he is already entitled.     In exchange for the foregoing release by Employee, Pyramid hereby releases and foreverdischarges Employee and his marital community from and against any and all claims, demands orcauses of action of any nature whatsoever, whether known or unknown, arising from or in any wayconnected with Employee’s relationship with Pyramid whether based in tort, contract, or anyfederal, state or local law, statute or regulation, arising through the date of this Agreement;provided, however, that the foregoing shall not release Employee from any obligations assumed orreaffirmed under this Agreement or for any willful misconduct or fraud of Employee.     The parties represent and warrant that each is the sole owner of the actual or alleged claims,rights, causes of action, and other matters which are released herein, that the same have not beenassigned, transferred, or disposed of in fact, by operation of law, or in any manner, and that suchparty has the full right and power to grant, execute and deliver the releases, undertakings, andagreements contained herein.     **4. NO ADMISSION OF WRONGDOING**     This Agreement shall not be construed as an admission by either party of any wrongful act,unlawful discrimination, or breach of contract, and each party specifically disclaims any liabilityto or discrimination against Pyramid, Employee or any other person.
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     **5. CONFIDENTIALITY OF SEPARATION AGREEMENT/NONDISPARAGEMENT**     The parties agree that they will keep the terms of this Agreement (including, but not limitedto, the payments pursuant to Paragraph 2) completely confidential, and that neither party willdisclose any information concerning this Agreement or its terms to anyone other than Employee’sspouse or domestic partner, the parties’ respective legal counsel, tax advisors, accountants and/orfinancial advisors, who will be informed of and bound by this confidentiality clause, withinPyramid’s senior management and except as required by court order or by applicable law (includingfederal securities laws and regulations). In the event either party is requested, by court orderor any other legal process, to provide information covered by this confidentiality obligation, thatparty agrees to immediately notify the other party of any such request.     The parties agree that neither party shall make disparaging remarks with regard to the otherparty.      **6. REAFFIRMATION OF CONFIDENTIALITY, UNFAIR COMPETITION AND NONRAIDING OFEMPLOYEES AGREEMENTS**     Employee expressly reaffirms and incorporates herein as part of this Agreement thepost-employment provisions of the confidentiality, unfair competition and nonraiding of employeesprovisions in Paragraphs 13 and 15 of the Employment Agreement, a copy of which was given toEmployee, and which provisions shall remain in full effect.     **7. SEVERABILITY**     The provisions of this Agreement are severable, and if any part of it is found to be unlawfulor unenforceable, the other provisions of this Agreement shall remain fully valid and enforceableto the maximum extent consistent with applicable law.     **8. ENTIRE AGREEMENT**     This Agreement, and the Employment Agreement that is incorporated herein by reference, setsforth the entire understanding between Employee and Pyramid and supersedes any prior agreements orunderstandings, express or implied, pertaining to the terms of Employee’s employment with Pyramidand the employment relationship. Each party acknowledges that in executing this Agreement, suchparty does not rely upon any representation or statement by the other party or its or hisrepresentatives concerning the subject matter of this Agreement, except as expressly set forth inthe text of the Agreement. No modification or waiver of this Agreement will be effective unlessevidenced in a writing signed by both parties.     **9. GOVERNING LAW**     This Agreement will be governed by and construed exclusively in accordance with the laws ofthe State of Washington without reference to its choice of law principles. Any
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disputes arising under this Agreement shall be brought in a court of competent jurisdiction inthe State of Washington.     **10. KNOWING AND VOLUNTARY AGREEMENT**     **Employee agrees that Employee has carefully read and fully understands all aspects of thisAgreement including the fact that this Agreement releases any claims that Employee might haveagainst Pyramid, except for specifically reserved rights and claims, as provided herein. Employeeagrees that Employee has been advised to consult with an attorney prior to executing the Agreement,and that Employee has either done so or knowingly waived the right to do so, and now enters intothis Agreement without duress or coercion from any source. Employee agrees that he has beenprovided the opportunity to consider for twenty-one (21) days whether to enter into this Agreement,and has voluntarily chosen to enter into it on this date. Employee may revoke this Agreement for aperiod of seven (7) days following the execution of this Agreement; this Agreement shall becomeeffective following expiration of this seven (7) day period.**     **11. RESIGNATION FROM PYRAMID BOARD; INDEMNIFICATION**     Employee hereby resigns from the Board of Directors of Pyramid, effective as of June 30, 2006.Nothing herein shall affect any right to defense or indemnification or advancement of expenses towhich Employee is entitled to in connection with his role as an employee, agent, director orofficer of Pyramid, whether pursuant to the Washington Business Corporation Act, Pyramid’s articlesof incorporation or bylaws, or contract, including his Employment Agreement or any policy ofinsurance.     **12. COUNTERPARTS**     This Agreement may be executed in any number of counterparts, all of which together shall forall purposes constitute one agreement, binding on all the parties, notwithstanding that all theparties have not signed the same counterpart.     IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates indicated below.       **Pyramid Breweries, Inc.** **EMPLOYEE**         By: /s/ George Hancock /s/ John J. Lennon       John J. Lennon  Its: Chairman                  Dated: July 3, 2006 Dated: July 3, 2006  
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