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Between:

And:

Crailar Technologies Inc.
305 - 4420 Chatterton Way, Victoria, British Columbia, Canada, V8X 5J2

SCHEDULE A   -   Specifications

THIS SUPPLY AGREEMENT is made as of January 10, 2013 (the "Effective Date").

BETWEEN:

AND:

WHEREAS:

(A)     KOWA is engaged in the design, development, manufacture, marketing and sale of textiles;

(B)     CRAiLAR has developed, is in the possession of, and is the beneficial owner of, substantial and valuable expertise, know-how and certain Intellectual Property relating to the field of developing and carrying out enzyme-based processing of natural bast fibers through its wholly-owned subsidiary, Crailar Fiber Technologies Inc., through a global, exclusive licensing contract with the National Research Council of Canada ("NRC"); and

(C)     KOWA wishes to purchase from CRAiLAR, and CRAiLAR wishes to supply to KOWA, fiber that meets the specifications as set forth in Schedule A (such fiber, the "Goods", and such specifications, the "Specifications") for evaluation purposes in the Field as defined below (the "KOWA Products") on the terms and conditions as set forth in this Agreement.

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NOW THEREFORE, the parties hereto covenant and agree as follows:

1.1     Definitions. In this Agreement, and in addition to any other defined terms set out in this Agreement, the following words or phrases have the following meanings, unless the context otherwise requires:

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1.2     Interpretation. In this Agreement, except as otherwise expressly provided or unless the context otherwise requires,

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1.3     Schedules. The following schedules are incorporated into this Agreement by reference and form part hereof:

2.1     Purchase and Sale. CRAiLAR will sell and deliver to KOWA, and KOWA will purchase from CRAiLAR, the Goods on the following terms and conditions:

2.2     Ordering. In connection with the supply of goods:

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2.3     Quality Assurance. CRAiLAR shall manufacture the Goods in accordance with the Specifications.

2.4     Taxes. The Purchase Price excludes all applicable federal, state, provincial and local use, sales, property (ad valorem) and similar taxes on the sale of the Goods, which shall be paid by KOWA. All such taxes shall be set forth as separate items on each CRAiLAR invoice.

2.5     Late or Missed Payments. If KOWA fails or refuses to make any payment hereunder on or before the date on which such payment is due, interest will accrue at a rate of 1.5% per month compounded monthly (or 19.56% per annum). Notwithstanding the foregoing, KOWA's failure to pay any amount when due hereunder will constitute a material breach hereof.

2.6     Change Orders. Notwithstanding anything to the contrary contained herein, KOWA may make changes in the scope of a Purchase Order at any time before such Purchase Order is fulfilled by CRAiLAR, and make changes in the method of shipping or packaging and place or time of delivery, by any reasonable means of communication. If any change affects the Purchase Price or delivery schedule for the Goods, an equitable adjustment to the affected Purchase Price or delivery schedule shall be made if CRAiLAR discloses same in writing to KOWA. If any change, whether by reduction or cancellation of a Purchase Order, would result in any additional costs to CRAiLAR associated with the processing of such Goods which cannot be reasonably recouped by CRAiLAR, CRAiLAR may adjust the Purchase Price as set out above. If the parties are unable to agree in writing to any such adjustment, such change shall not be effective.

2.7     Non-Woven Goods. CRAiLAR has currently granted exclusivity for non-woven goods with respect to the Goods to a third party. If KOWA wishes to make non-woven goods for the Japanese market, KOWA may do so using such third party's non-woven substrate made from the Goods ("Substrate"). If such third party declines to supply such non-woven substrate to KOWA, CRAiLAR will use reasonable commercial efforts to request that such third party agree to allow KOWA to evaluate and develop such non-woven goods for the Japanese market using the Substrate, which will be supplied pursuant to the terms and conditions mutually agreed by the relevant parties.

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3.1     Acceptance. KOWA shall be deemed to have accepted the Goods unless KOWA notifies CRAiLAR of KOWA's rejection of the Goods within ten calendar days of receipt in accordance with the provisions of this Agreement. Such acceptance shall not affect any representations or warranties set out in this Agreement.

3.2     Rejected Goods. If any of the Goods are defective or otherwise not in conformity with the Specification or other requirements of this Agreement, and are reported within the requirements set out in Section 3.1, then KOWA shall have the right to reject the Goods without obligation or liability and require CRAiLAR, at CRAiLAR's sole risk and expense, to properly dispose of the non-conforming Goods, in accordance with industry standards and all applicable laws, rules and regulations; and to further require CRAiLAR to provide KOWA with a cash refund of or credit for the Purchase Price, or to provide replacement Goods, all at KOWA's option. CRAiLAR shall not replace any rejected Goods without KOWA's prior consent. Any replacements of the Goods shall be additionally and automatically warranted against defects and subject to these same obligations of CRAiLAR hereunder.

3.3     Recalls. Without limiting the foregoing, in the event of a recall or withdrawal, of any Goods manufactured by CRAiLAR under this Agreement is (a) either directed by any federal, provincial, state or local government agency, or (ii) determined by CRAiLAR (including at the request of KOWA) to be reasonably necessary because of product quality or any defect or nonconformity with the specifications set out herein, the selection and the method of effectuating any such recall or withdrawal and the remedy utilized shall be controlled and under the reasonable discretion of CRAiLAR, taking into account any applicable requirements of involved government agencies and the reasonable directions of KOWA.

3.4     Compliance. Each party shall comply with all applicable governmental laws, rules, regulations, executive orders, priorities, ordinances and restrictions in effect at the time of each Purchase Order.

3.5     FCPA. CRAiLAR shall sell all Goods ordered by KOWA hereunder and KOWA shall buy all Goods ordered by it hereunder in compliance with all applicable laws and regulations, including, but not limited to, all applicable anti-bribery laws, regulations, rules and requirements including the United States Foreign Corrupt Practices Act ("FCPA"). In accordance with this understanding, each party represents that it, and each of its owners, directors, officers, employees, and every other person acting on its behalf, has not and will not, in connection with any business transactions involving the other party or the Goods, directly or indirectly: offer, promise, authorize or make any payments of money or anything of value to any "Government Official", foreign political party or party official, any candidate for foreign political office, or any agent or intermediary for further payment to any of the foregoing (i) to influence the acts of the Government Official, political party, or candidate for political office, (ii) to induce the Government Official, political party or candidate to use his or her influence with a

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government or instrumentality thereof, or (iii) to obtain an improper advantage; or otherwise offer, promise, or pay any illegal bribe, kickback or other payment in violation of any applicable law; this prohibition includes "Facilitation Payments."

3.6     Toxic Substances. CRAiLAR represents and warrants that the Goods have been and will be manufactured, sold, furnished, transferred and delivered in compliance with all applicable sections of the Toxic Substance Control Act (15 USCS Section 2601) et seq., all applicable amendments, regulations, rulings, orders and standards thereunder. Prior to the delivery of the Goods, CRAiLAR shall furnish to KOWA Material Safety Data Sheets ("MSDS") in the format and with the information required by the Occupational Safety and Health Administration for the Goods. Such MSDS shall contain all information reasonably necessary to enable KOWA to comply with any applicable "hazard communication" or "right-to-know" laws.

3.7     Site Policies. While on site at any of the other party's owned or contracted facilities, each party and its agents shall comply with all safety rules, regulations, security, confidentiality, health and other policies of the other party which apply to such facilities. Each party hereby acknowledges that the other party has informed it of its policy that being under the influence of, bringing in, possessing, providing, manufacturing or other production of, buying, selling or using alcoholic beverages, unauthorized drugs or controlled substances on the other party's property or in its vehicles, is strictly prohibited. Each party understands and agrees to follow this policy while visiting the other party's facilities.

4.1     Non-Solicitation. No party will, during the Term and for a period of two years after the expiry thereof, solicit for employment any individual who is, at the time of such solicitation, employed by the other party or its Affiliates, nor will such party, directly or indirectly, induce any such individual to leave his or her employment. Each of CRAiLAR and KOWA will ensure that their respective Affiliates will comply with this Section 4.1.

4.2     CRAiLAR Exclusivity. Unless expressly agreed to in writing by KOWA, during the Term, CRAiLAR agrees that it will not directly sell the Goods or any goods that are substantially similar to the Goods to any manufacturer in Japan for Japanese consumption, other than KOWA. CRAiLAR makes no representation, warranty, or agreement regarding its ability to prevent CRAiLAR's other partners', joint developers', or any other third party's ability from selling the Goods or any goods that are substantially similar to the Goods to any party in Japan, though (without limiting the generality of the foregoing) it will use commercially reasonable efforts to negotiate such restrictions with future partners, developers or third parties.

4.3     Reasonable Restriction. Each party agrees that the restrictions contained in this Part 4 are reasonable for the protection of the respective legitimate business interests of the parties.

4.4     Injunctive Relief. Each party acknowledges that a breach by it or any of its Affiliates of any covenant contained in this Part 4 could result in damages to the other party which may not adequately be compensated for by monetary award alone. Accordingly, in the

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event of any such breach by a party, in addition to all other remedies available to the other party at law or in equity, such other party will be entitled as a matter of right, to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate, to ensure compliance with the provisions of this Part 4.

5.1     Term. Unless terminated earlier in accordance with the provisions of this Agreement, the term of this Agreement shall commence on the Effective Date and shall continue for a period of six months (the "Initial Term").

5.2     Renewals. This Agreement may be renewed for successive periods by written agreement between the parties, and on such terms as agreed to in writing by the parties (each a "Renewal Term").

5.3     Joint Development. If KOWA obtains any possible KOWA Products during the Initial Term or Renewal Term, the parties shall make good faith discussion to conclude a joint development agreement with KOWA to facilitate the development of the KOWA Products for commercial purpose,

5.4     Termination by Either Party. Either party shall be entitled to terminate this Agreement in its entirety if

5.5     Survival. If this Agreement is terminated or expired, those rights and obligations of CRAiLAR and KOWA that, by their nature, are intended to survive will so survive, including Part 1, Section 2.4, Section 2.5, Section 4.1, Section 4.3, Section 4.4, this Part 5, Part 6, Part 7, Section 8.4, Section 8.5, Part 9 and Part 10.

6.1     Prior IP. All CRAiLAR Existing IP will remain the property of CRAiLAR and all KOWA Existing IP will remain the property of KOWA, and all respective right, title and interest therein (including all Intellectual Property Rights) shall remain with CRAiLAR or KOWA, as the case may be, except as expressly set out in this Agreement, and no license, real or implied will be granted with respect to such Intellectual Property except as contemplated in this Agreement, if any. To this end, the parties will execute or cause to be executed such deeds, documents, instruments, assignments and moral rights waivers as maybe necessary to effect the intent of this Section 6.1.

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6.2     Arising IP. All Intellectual Property which arises directly as a result of KOWA's development (including joint developments with third parties) of yarns, fabrics or non-woven goods using the Goods will be the property of KOWA (the "KOWA Arising IP"). All Intellectual Property which arises as a result of the creation and processing of the Goods will be the property of CRAiLAR (the "CRAiLAR Arising IP"). For greater clarity, to the extent that any KOWA Arising IP uses or incorporates any CRAiLAR IP, such CRAiLAR IP will remain the exclusive property of CRAiLAR. To this end, the parties will execute or cause to be executed such deeds, documents, instruments, assignments and moral rights waivers as maybe necessary to effect the intent of this Section 6.2.

6.3     Confidential Information. Notwithstanding anything else in this Agreement, neither party will, without the prior written approval of the other party, disclose or use for any purpose other than performance of its obligations under this Agreement any Confidential Information of the other party that may come to its knowledge or possession by reason of performance under this Agreement, exchange of information under this Agreement or the entry of this Agreement. In connection therewith, the following provisions apply:

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7.1     Initiation of Process. If at any time a dispute between the parties with respect to any matter relating to this Agreement arises, a party that wishes that the issue be considered further may give written notice (in this Part, the "Dispute Notice") to the other requiring that such issue or dispute be decided pursuant to this Part 7.

7.2     Referral to Senior Officers. If a Dispute Notice is given, the senior officers of each of the parties shall initiate discussions with a view to settling the issue or matter. A decision reached by such Senior Officers and communicated by them in writing to the parties will be binding on the parties and will be implemented.

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7.3     Submission to Arbitration. If no decision is communicated by the Senior Officers within 30 calendar days after such issue or dispute is referred to them, either party may at any time before a decision thereon is so communicated and less than 120 calendar days after delivery of the Dispute Notice, by further notice given to the other, submit the issue or dispute to arbitration in accordance with the rules of arbitration of the British Columbia International Commercial Arbitration Centre (in this Part, the "Rules") as modified by the provisions herein. The issue or dispute will be submitted to one arbitrator in accordance with the Rules.

7.4     Place of Arbitration. All arbitration proceedings will be conducted in the English language in Vancouver, British Columbia.

7.5     Final and Binding. Any award or decision of the arbitrator or an arbitration pursuant to Section 7.3 shall be final and binding upon the parties.

7.6     Legal Proceedings. A legal proceeding commenced by a party to this Agreement in respect of an issue or dispute that may be arbitrated under this Agreement (a) will be stayed until the time during which arbitration may be initiated has expired or, if arbitration is initiated, a decision on the arbitration is delivered or the arbitration process has otherwise ended, and (b) will be discontinued following the award or decision of the arbitrator on the arbitration unless such decision is not to continue with the arbitration of the issue or dispute.

7.7     Exclusions. This Part 7 will not apply to the grant of provisional remedies, including injunctions, restraining orders and specific performance, and each party reserves its right to commence such action or seek such remedies from any court of competent jurisdiction.

8.1     Mutual Representations. Each party hereby represents and warrants to each other party that

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8.2     CRAiLAR Representations. CRAiLAR represents and warrants that:

8.3     KOWA Representations. KOWA represents and warrants that:

8.4     No Other Warranties. THE CONDITIONS, REPRESENTATIONS AND WARRANTIES EXPRESSLY SET OUT HEREIN ARE IN LIEU OF, AND EACH PARTY EXPRESSLY DISCLAIMS, ALL CONDITIONS, WARRANTIES AND REPRESENTATIONS, EXPRESS, IMPLIED OR STATUTORY, INCLUDING IMPLIED CONDITIONS, WARRANTIES OR REPRESENTATIONS IN RESPECT OF QUALITY, CONDUCT, PERFORMANCE, RELIABILITY, AVAILABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY USAGE OF TRADE, BY COURSE OF DEALING, BY COURSE OF PERFORMANCE, AT LAW, IN EQUITY, BY STATUTE OR OTHERWISE HOWSOEVER, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW.

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8.5     Exclusions. CRAiLAR's warranty regarding the quality of the Goods does not apply to any of the following:

9.1     Indemnification. To the fullest extent permitted by application of law, each party (in this Part, the "Indemnifying Party") shall indemnify, defend and hold the other party, its Affiliates, and their respective officers, agents, employees and related companies (in this Part, collectively, "Indemnitees") harmless from any losses, costs, claims, expenses (including reasonable legal fees and court costs), suits, actions, judgments, fines, penalties or damages of every nature and description (in this Part, collectively, "Losses"), to the extent arising out of or resulting from:

9.2     Exceptions to CRAiLAR Infringement Indemnity. Notwithstanding Section 9.1(b)(i), CRAiLAR will have no obligation to indemnify KOWA if, and to the extent that the Losses arose or resulted from:

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9.3     Rights under Infringement Indemnity. If there arises an indemnification claim under Section 9.1(b)(i), or for which it would be reasonably likely that such a claim may arise, CRAiLAR may, in its sole discretion:

9.4     Conduct of Indemnities. Each party acknowledges that the Indemnifying Party will be given complete authority for the defence or settlement of claims indemnified hereunder, on the understanding that, in all events, the Indemnitees will have the right (at its own expense) to participate in such defence or compromise through counsel of its choosing. An Indemnifying Party's obligations to provide an indemnity hereunder is premised on:

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and each Indemnitee will conduct itself in accordance therewith, provided that in no case will the foregoing reduce the Indemnifying Party's obligation to indemnify except to the extent that the failure to comply therewith actually causes material prejudice to the Indemnifying Party.

9.5     Exclusion of Liability. EXCEPT IN RELATION TO THE INDEMNITIES EXPRESSLY PROVIDED HEREUNDER OR FOR A BREACH OF CONFIDENTIALITY, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL CLAIMS OF ANY KIND WHATSOEVER AND HOWEVER CAUSED, WHETHER ARISING UNDER CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, INCLUDING (WITHOUT LIMITATION, AND WHETHER DIRECT OR INDIRECT) LOSS OF PRODUCTION, LOSS OF PROFITS OR OF CONTRACTS, LOSS OF BUSINESS, LOSS OF MANAGEMENT OR OPERATION TIME AND LOSS OF GOODWILL OR ANTICIPATED SAVINGS, EVEN IF THE PARTY HAS BEEN NOTIFIED OF THE POSSIBILITY THEREOF OR COULD HAVE FORESEEN SUCH CLAIMS.

9.6     Limit of Liability. EXCEPT IN RELATION TO THE INDEMNITIES EXPRESSLY PROVIDED HEREUNDER OR FOR A BREACH OF CONFIDENTIALITY, EACH PARTY'S AGGREGATE LIABILITY UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT DAMAGES NOT TO EXCEED THE PURCHASE PRICE MULTIPLIED BY THE MAXIMUM ANNUAL QUANTITY AS THEN-CURRENT AT THE TIME SUCH LIABILITY AROSE.

9.7     Insurance. Each party agrees to maintain, at its own expense, commercially reasonable, sufficient insurance coverage with respect to its operations as available on commercially reasonable terms to it, and to provide copies thereof upon request to the other party (subject to reasonable confidentiality obligations).

10.1     Force Majeure. If either party is delayed in or prevented from the manufacture, or making available of the Goods (in the case of CRAiLAR), or ability to accept or process the Goods (in the case of KOWA) due to any act of God, labour dispute or strike, war or civil disturbance, or any other cause beyond such party's control and not due to such party's fault or negligence which could not reasonably be anticipated and avoided (but in any event excluding a lack of cash, credit or financing), then:

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10.2     Relationship. In the performance of this Agreement, each party shall operate as an independent contractor and not as an agent of the other. Neither party nor its employees, suppliers or agents shall be deemed under any circumstances to be agents, employees or servants of the other party.

10.3     Modifications, Approvals and Consents. No amendment, modification, supplement, termination or waiver of any provision of this Agreement will be effective unless in writing signed by the parties and then only in the specific instance and for the specific purpose given.

10.4     Further Assurances. The parties will execute such further assurances and other documents and instruments and do such further and other things as may be necessary to implement and carry out the intent of this Agreement.

10.5     Entire Agreement. The provisions in this Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the supply and purchase of Goods and supersede all previous expectations, understandings, communications, representations and agreements whether verbal or written between the parties. . All prior and contemporaneous proposals, negotiations, representations and agreements with respect to the Goods are replaced by this Agreement and no course of prior dealings between the parties and no usage of the trade shall be relevant to supplement or explain any term used in this Agreement.

10.6     Notices. Every notice, request, demand, direction or other communication (each, for the purposes of Section 10.6, Section 10.7 and Section 10.8, a "Notice") required or permitted to be given pursuant to this Agreement will be deemed to be well and sufficiently given if in writing and delivered by hand (including recognized overnight courier service) or transmitted by facsimile, in each case addressed as follows:

or to such other address or transmission receiving station as is specified by the particular party by Notice to the others.

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10.7     Deemed Receipt. Any Notice delivered or sent as aforesaid will be deemed conclusively to have been effectively given and received on the day Notice was delivered or sent as aforesaid if it was delivered or sent on a day that was a Business Day or on the next day that is a Business Day if it was delivered or sent on a day that was not a Business Day.

10.8     Change of Address. A party may at any time, by Notice to the others, change its address to some no less convenient address and will so change its address whenever its address ceases to be suitable for delivery by hand.

10.9     Enurement. This Agreement will enure to the benefit of and be binding upon the parties and their respective successors and permitted assigns.

10.10     Governing Law. This Agreement will be deemed to have been made in British Columbia, Canada and the construction, validity and performance of this Agreement will be governed in all respects by the laws of British Columbia and applicable laws of Canada.

10.11     Attornment. Subject to Part 7, each party irrevocably attorns to the exclusive jurisdiction of the courts of British Columbia, Canada and all courts having appellate jurisdiction thereover in respect of any proceeding arising out of or relating to this Agreement.

10.12     Assignment. Neither party shall delegate any duties or liabilities nor assign any rights or claims under this Agreement without the prior written consent of the other party, which shall not be unreasonably withheld, conditioned or delayed; provided that neither party's consent shall be required (though contemporaneous notice shall be required) in the event of assignment by a party (a) to any entity which is an affiliate of such assigning party; (b) to a successor of such assigning party as part of an internal reorganization of such assigning party which results in such assigning party being organized in a different legal entity or corporate form, whether through conversion, merger, or otherwise; or (c) to an assignee that is a purchaser of all or substantially all of the assigning party's assets or business. Any such attempted delegation or assignment shall be void.

10.13     Severability. If any provision of this Agreement is at any time unenforceable or invalid for any reason, it will be severable from the remainder of this Agreement and, in its application at that time, this Agreement will be construed as though such provision was not contained herein and the remainder will continue in full force and effect and be construed as if this Agreement had been executed without the invalid or unenforceable provision.

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10.14     Counterparts. This Agreement may be executed in counterparts or by facsimile, each of which will together, for all purposes, constitute one and the same instrument, binding on the parties, and each of which will together be deemed to be an original, notwithstanding that both parties are not signatories to the same counterpart or facsimile.

IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above.

Per:          /s/ Guy Prevost                          
           Authorized Signatory
Name and Title:    Guy Prevost - CFO     

Per:       /s/ Yukinori Okubo                          
           Authorized Signatory
Name and Title: Yukinori OKUBO, Operating Officer & General Manager

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