Share Exchange Agreement between Shareholders of Crailar Fiber Technologies Inc. and Naturally Advanced Technologies Inc.

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SHARE EXCHANGE AGREEMENT

Between:

And:

Crailar Fiber Technologies Inc.
1307 Venables Street, Vancouver, British Columbia, Canada, V5L 2G1

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(A)                 The Shareholders collectively own 25% of the issued and outstanding common shares of Crailar Fiber Technologies Inc., a British Columbia company ("Crailar");

(B)                 NAT owns the remaining 75% of the issued and outstanding common shares of Crailar;

(C)                 NAT desires to acquire the issued and outstanding common shares of Crailar held by the Shareholders; and

(D)                 The Shareholders have agreed to exchange their common shares of Crailar to NAT in exchange for common shares of NAT and warrants to purchase additional common shares of NAT, on the terms and conditions set forth herein.

                       NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of covenants and agreements set forth herein and of the consideration paid by NAT to each of the Shareholders, the receipt of which is hereby acknowledged, the parties hereto agree each with the other as follows:

PART I
DEFINITIONS

1.1                 The following terms have the respective meanings specified in this Article, unless the context indicates otherwise:

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1.2                  The following schedules are attached to and form part of this Agreement:

1.3                  The following exhibits are attached to and form part of this Agreement:

1.4                  All dollar amounts referred to in this Agreement are in United States funds, unless expressly stated otherwise.

2.1                  In reliance on the representations and warranties, and on the terms and subject to the conditions in this Agreement, at the Closing, each Shareholder will deliver and transfer to NAT his or her Crailar Shares in the amounts set forth in Schedule 2.1 of this Agreement, free and clear of all Encumbrances.

2.2                  As consideration for the delivery of the Crailar Shares by each Shareholder, NAT shall allot and issue the NAT Shares and the NAT Warrants to the Shareholders in the amounts set forth in Schedule 2.2 of this Agreement.

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2.3                  The Closing will take place as soon as possible following satisfaction of the conditions precedent to Closing set forth in this Agreement.

2.4                  The parties hereto intend that the exchange of the Crailar Shares for the NAT Shares and NAT Warrants hereunder shall be treated as a reorganization described in Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"). In addition, NAT shall not take or allow any action that would cause the within exchange to fail to qualify as a reorganization under Section 368(a) of the Code or any of the exchanging Shareholders to recognize a gain under Section 367 of the Code.

                      Each Shareholder severally covenants with and represents and warrants to NAT as follows, and acknowledges that NAT is relying upon such covenants, representations and warranties in connection with the execution, delivery and performance of this Agreement:

3.1                  The Shareholder has all necessary legal right and capacity to execute and deliver this Agreement, to transfer the legal and beneficial title and ownership of the Crailar Shares owned by the Shareholder to NAT, to perform all of the Shareholder's obligations hereunder and to comply with the terms and provisions of this Agreement, and this Agreement constitutes a valid and binding obligation of the Shareholder in accordance with its terms.

3.2                  Except as provided for in this Agreement, no Person has any agreement, option or right, present or future, contingent, absolute or capable of becoming an agreement, option or right to require the Shareholder to, sell, transfer, assign or otherwise dispose of the Crailar Shares.

3.3                  The Shareholder owns and has good and marketable title to the Crailar Shares as the legal and beneficial owner thereof, free of all Encumbrances.

3.4                  No broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Shareholder.

3.5                  The Shareholder is not a party to, bound by or subject to any indenture, mortgage, lease, agreement, instrument, statute, regulation, order, judgment, decree or law which would be violated, contravened or breached by, or under which any default would occur or which gives rise to a requirement to obtain any authorization, consent, approval or waiver from any third Person as a result of, and there are no actions, claims, suits, litigation, investigations or proceedings pending or threatened against or affecting the Shareholder which would prevent

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3.6                  No filing or registration with, no notice to and no permit, authorization, consent, or approval of any public or governmental body or authority or other person or entity is necessary for the consummation by the Shareholder of the transactions contemplated by this Agreement.

3.7                  This Agreement has been duly authorized, validly executed and delivered by the Shareholder.

3.8                  The Shareholder acknowledges that it is a condition precedent to the Closing that the Shareholder will have executed and delivered to NAT the applicable Shareholder Questionnaire and Investment Agreement (substantially in the form attached hereto as Exhibit B or Exhibit C, as applicable) and further acknowledges that NAT is relying upon the covenants, representations and warranties made by the Shareholder therein, which are incorporated herein in their entirety.

3.9                  The Shareholder acknowledges that NAT will rely on these warranties and representations in completing the Transaction, including the issuance of the NAT Shares and NAT Warrants to the Shareholder.

                      NAT represents and warrants to each Shareholder as follows, and acknowledges that each Shareholder is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement:

4.1                  NAT is duly organized, validly existing and in good standing under the laws of the Province of British Columbia and has all requisite corporate power and authority to own, lease and to carry on its respective businesses as now being conducted.

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4.2                  NAT has all requisite corporate power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement to be signed by NAT and to perform its obligations thereunder and to consummate the Transaction. The execution and delivery by NAT of this Agreement and any other document contemplated by this Agreement and the consummation by NAT of the Transaction have been duly authorized by its Board of Directors and no other corporate or shareholder proceedings on the part of NAT are necessary to authorize such documents or to consummate the Transaction.

4.3                  The obligations of NAT according to this Agreement are valid, binding and enforceable against NAT under their respective terms and conditions subject only to bankruptcy, insolvency, reorganization, composition or similar laws affecting creditor's rights in general.

4.4                  The authorized share capital of NAT consists of 100,000,000 common shares without par value, of which 17,550,151 shares were outstanding as at August 18, 2006. NAT has no other class of voting securities. Except as set forth on Disclosure Schedule 4.4, there are no outstanding options, warrants, subscriptions, phantom shares, conversion rights, or other rights, agreements, or commitments obligating NAT to issue any additional shares of NAT Stock, or any other securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire from NAT any shares of NAT Stock.

4.5                  The NAT Shares and NAT Warrants to be issued to the Shareholders upon consummation of the Transaction in accordance with Section 2.2 of this Agreement will, upon issuance, have been duly and validly authorized and, when so issued in accordance with their terms, will be duly and validly issued, fully paid and non-assessable. The NAT Warrant Shares have been duly and validly authorized and reserved for issuance and when so issued upon exercise of the NAT Warrants in accordance with the terms thereof (including receipt in full of the exercise price), will be duly and validly issued, fully paid and non-assessable.

4.6                  There is no claim, charge, arbitration, grievance, action, suit, investigation or proceeding by or before any court, arbiter, administrative agency or other governmental authority now pending or, to the best knowledge of NAT, threatened against NAT which involves any of the business, or the properties or assets of NAT that, if adversely resolved or determined, would have a material adverse effect on the business, operations, assets, properties, prospects or conditions of NAT taken as a whole. There is no reasonable basis for any claim or action that, based upon the likelihood of its being asserted and its success if asserted, would have such a material adverse effect.

4.7                  NAT has timely filed with the SEC all documents required to have been filed pursuant to the Securities Act and the Exchange Act (collectively, the "SEC Documents") and has made those documents available to the public on the SEC's EDGAR System. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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4.8                  Included with the SEC Documents are true, correct, and complete copies of audited balance sheets for NAT dated as of December 31, 2005 and December 31, 2004, together with related statements of income, cash flows, and changes in shareholder's equity for the fiscal years then ended (collectively, the "NAT Financial Statements"). The NAT Financial Statements:

4.9                  Except as and to the extent disclosed in the SEC Documents, since June 30, 2006 there has not been:

4.10                No filing or registration with, no notice to and no permit, authorization, consent, or approval of any public or governmental body or authority or other person or entity is necessary for the consummation by NAT of the transactions contemplated by this Agreement, except for filings required by applicable securities laws.

4.11                There are no material contracts, agreements, licenses, permits, arrangements, commitments, instruments, understandings or contracts, whether written or oral, express or implied, contingent, fixed or otherwise, to which NAT is a party except as disclosed in the SEC Documents.

4.12                NAT has not incurred any obligation or liability to any party for any brokerage fees, agent's commissions, or finder's fees in connection with the transactions contemplated by this Agreement.

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4.13                The minute books of NAT contain a complete summary of all meetings of directors and shareholders since the time of incorporation of such entity and reflect all transactions referred to in such minutes accurately in all material respects.

4.14               NAT acknowledges that the Shareholders will rely on the warranties and representations in completing the Transaction.

5.1                  The obligation of NAT to consummate the Transaction with respect to any Shareholder is subject to the satisfaction of the conditions set forth below, unless any such condition is waived NAT at the Closing. The Closing of the transactions contemplated by this Agreement will be deemed to mean a waiver of all conditions to Closing. These conditions of closing are for the sole benefit of NAT and may be waived only by NAT in its discretion.

5.2                  The obligation of the each Shareholder to consummate the Transaction is subject to the satisfaction of the conditions set forth below, unless such condition is waived by the Shareholder at the Closing. The Closing of the Transaction will be deemed to mean a waiver of all conditions to Closing. These conditions of closing are for the benefit of the Shareholder and may be waived only by such Shareholder.

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6.1                  The Closing shall take place on the Closing Date at the offices of the legal counsel for NAT or at such other location as agreed to by the parties. Notwithstanding the location of the Closing, each party agrees that the Closing may be completed by the exchange of undertakings between the respective legal counsel for the Shareholder and NAT, provided such undertakings are satisfactory to each party's respective legal counsel.

6.2                  At Closing, each Shareholder will deliver or cause to be delivered the following, fully executed and in form and substance reasonably satisfactory to NAT:

6.3                  At Closing, NAT will deliver or cause to be delivered the following, fully executed and in form and substance reasonably satisfactory to each Shareholder:

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7.1                  This Agreement may be terminated with respect to a Shareholder at any time prior to the Closing Date contemplated hereby by:

7.2                  In the event of the termination of this Agreement as provided in Part 7, this Agreement will be of no further force or effect, provided, however, that no termination of this Agreement will relieve any party of liability for any breaches of this Agreement that are based on a wrongful refusal or failure to perform any of its obligations.

8.1                  For the purposes of this Part 8, the terms "Loss" and "Losses" means any and all demands, claims, actions or causes of action, assessments, losses, damages. liabilities, costs, and expenses, including without limitation, interest, penalties, fines and reasonable attorneys, accountants and other professional fees and expenses, but excluding any indirect, consequential or punitive damages suffered by NAT or a Shareholder, including damages for lost profits or lost business opportunities.

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8.2                  Each Shareholder will, severally and not jointly, indemnify, defend, and hold harmless NAT, its respective officers, directors, shareholders, employees and affiliates from, against, and in respect of any and all Losses asserted against, relating to, imposed upon, or incurred by NAT by reason of, resulting from, based upon or arising out of:

8.3                  NAT will indemnify, defend, and hold harmless each Shareholder from, against, for, and in respect of any and all Losses asserted against, relating to, imposed upon, or incurred by such Shareholder by reason of, resulting from, based upon or arising out of:

9.1                  NAT is entitled to rely on the representations, warranties and agreements of each Shareholder, and each Shareholder is entitled to rely on the representations, warranties and agreements of NAT, and all such representation, warranties and agreement will be effective regardless of any investigation that any party has undertaken or failed to undertake.

9.2                  Each of the parties hereto will cooperate with the others and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence, and confirm the intended purposes of this Agreement.

9.3                  With respect to each Shareholder, this Agreement may not be amended except by an instrument in writing signed by each of NAT and such Shareholder.

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9.4                  Each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of agents, representatives, counsel, and accountants.

9.5                  This Agreement, the exhibits, schedules attached hereto and the other Transaction Documents contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior arrangements and understandings, both written and oral, expressed or implied, with respect thereto.

9.6                  All notices and other communications required or permitted under to this Agreement must be in writing and will be deemed given if sent by personal delivery, faxed with electronic confirmation of delivery, internationally-recognized express courier or registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as will be specified by like notice):

                      All such notices and other communications will be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of a fax, when the party sending such fax has received electronic confirmation of its delivery, (iii) in the case of delivery by internationally-recognized express courier, on the business day following dispatch and (iv) in the case of mailing, on the fifth business day following mailing.

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9.7                  The headings contained in this Agreement are for convenience purposes only and will not affect in any way the meaning or interpretation of this Agreement.

9.8                  This Agreement is and will only be construed as for the benefit of or enforceable by those persons party to this Agreement.

9.9                  This Agreement may not be assigned (except by operation of law) by any party without the consent of the other parties.

9.10                This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia applicable to contracts made and to be performed therein and the federal laws of Canada applicable thereto.

9.11                The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

9.12                This Agreement may be executed in one or more counterparts, all of which will be considered one and the same agreement and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

9.13                This Agreement may be executed by electronic delivery of signed signature pages by fax, e-mail or similar means and such electronic delivery will be effective for all purposes.

9.14                The schedules and exhibits are attached to this Agreement and incorporated herein.

                  IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

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NATURALLY ADVANCED TECHNOLOGIES INC.:

Per:                                                             
            Authorized Signatory

SHAREHOLDERS:

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Peter Moore
3629 NE Flanders Street, Portland, Oregon, U.S.A., 97232

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Chen Yen Yeo
10, 2^nd Avenue, Singapore, 266660

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James A. Stutts, Jr.
1051 Calle Anacapa, Encinitas, California, U.S.A., 92024

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Mary E. McGoldrick
80 Fence Row Drive, Fairfield, Connecticut, U.S.A., 06824

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