Pyramid Breweries Reaches Preliminary Settlement with Government Tax and Trade Bureau.

SEATTLE -- Pyramid Breweries Inc. (NASDAQ:PMID) announced yesterday the Company has reached a preliminary understanding with the federal Alcohol and Tobacco Tax and Trade Bureau ("TTB") that it will pay $700,000 to resolve all issues arising from the TTB's audit of Pyramid's federal excise tax returns

and related operations. After completing audits of Pyramid's Portland, Berkeley and Seattle facilities, the TTB concluded that Pyramid, not Portland Brewing Company ("Portland Brewing"), was the legal brewer at the facility and that the federal excise tax on beer production at the Portland facility from January 2005 though May 2006 had been underpaid. Pending receipt of the final assessment, the Company began voluntarily paying federal excise taxes on beer produced at the Portland brewery facility as if the Company is the brewer at the facility (i.e., at a higher average rate per barrel).

Consequently, Pyramid also announced that it will terminate its contract brewing and other commercial relationships with Portland Brewing and will obtain all state and federal authorizations required for it to formally assume all brewery and alehouse operations at Pyramid's brewery and alehouse facilities in Portland, Oregon. Pyramid expects to be the brewer of record at its Portland facility within approximately 60 days.

Under the proposed settlement with the TTB, Pyramid will make a down payment of $50,000 and the remaining $650,000 will be paid over a 36-month period with an estimated interest rate of approximately 8%. The Company will recognize the $700,000 assessment as a charge to earnings for the quarter ended September 30, 2006. The Company anticipates that its current operating cash flows and other sources of liquidity will be sufficient to enable it to satisfy the payment terms.

About Pyramid Breweries Inc.

Pyramid Breweries Inc. is a leading brewer of specialty, full-flavored beers produced under the Pyramid, MacTarnahan's and Thomas Kemper brand names and a line of six premium sodas produced under the Thomas Kemper Soda Company brand name. The Company owns two alehouse restaurants adjacent to its full-production breweries under the Pyramid Alehouse and MacTarnahan Taproom brand names in Berkeley, California and Portland, Oregon, respectively, and three alehouse restaurants in Walnut Creek and Sacramento, California and Seattle, Washington. More information about Pyramid Breweries is available at www.pyramidbrew.com.