Exhibit
10.3









Via
Electronic Mail




October
23,2008




Dr. Tom
Furness


RATLab,
LLC


5607 40th
Ave NE


Seattle,
WA 98115




RE:Letter Agreement




Dear
Tom:




The
purpose of this Letter ("Letter") is to set forth the agreement between
Visualant, Inc. and assigns ("VSUL") and RATLAB, LLC, and affiliates ("RATLAB"),
with respect to a resolution of outstanding matters between the parties,
proposed future collaboration betweenthe
parties and licensing and equity participation agreements whereby assignswill
exploit the VSUL technology in certain enumerated fields of use, and VSULare
sometimes collectively referred to as "parties" and individually as a"party."




1.SUMMARY
OFTERMS.The following paragraphs
constitute a description of the parties' agreements with respect to the
transactions. Except as described herein, this Letter is binding on the parties
and the provisions described below shall be enforceable against the parties
either in the manner set forth in the individual agreements referenced herein
and attached hereto or as described below.




1.1 VSUL
has provided a non-exclusive non-commercial license referenced in Exhibit Aand made a part of this agreement by this reference.




1.2 VSUL
has provided anexclusive,
world-wide, commercial license to the referenced in Exhibit B and made a part of
this agreement by this reference.




1.3
RATLABshall provide to VSUL a license on independently developed and
RATLABowned
IPreferenced in Exhibit C and made a part of this agreement by this
reference.




1.4 In
addition to the royalties payable to VSUL under the license described inSection
1.2, if at any time the RATLAB elects to create an affiliate to exploitthe VSUL
IPunder the Section 1.2 license, the RATLAB will provide VSUL10% of
the initial equity of such affiliate in consideration for the granting of the
initial equity of such affiliate in consideration for the granting of Section
1.2 license to RATLAB. The VSUL interest in such RATLAB affiliate shall
benefit from the same preemptive rights and other protections, if any, enjoyed
by the other founders and will be subject to the same dilution risk from
additional investment, stock option grants, etc. as the other founders
face.






1




1.5 Upon
request, VSUL may grant one or more non-exclusive or exclusive commercial
licenses to the VSUL IPto the RATLAB in designated fields of use outside of the Exclusive
Fields. The scope and terms of such additional licenses will be negotiated in
good faith at the time of grant and will reflect the royalty rates for the
Exclusive Fields, with equitable adjustments to reflect differences in scope,
duration, industry, and other nuances inherent in the license. The license
agreement memorializing this intent is attached hereto as Exhibit Dto this Letter and incorporated herein by this reference.




1.6 VSUL
shall issue the RATLAB and RATLAB personnel VSUL common stock in
the amounts and for the benefit of the individuals as set forth in Exhibit E to
this the Letter and incorporated herein by this reference. The common stock in
the "vested column" for all individuals shall immediately vest. The additional
common stock for Messrs Furness and Schowengerdt shall vest upon according to
the schedule set forth in Exhibit Fto the Letter and incorporated
herein by this reference.




1.7 Upon
receipt of debt or equity financing from any source in an amount of at least
$100,000, VSUL shall pay the RATLAB the amount of $65,000 in cash for
previously unpaid invoices, which amount shall bear simple interest at the annual
rate of eighteen percent (18%) from June 1, 2007 until paid. Upon payment
the RATLAB shall deliver the two demonstration units remaining to be delivered.




1.8 VSUL
shall pay the RATLAB for work on an on-going basis on rates and pursuant
to terms which are to be negotiated.




2.          DEFINITIVE
AGREEMENTS.This agreement and the agreements attached hereto are the
definitive agreements covering the transactions between the
parties.




3.       MEDIATION.The parties hereto agree that any disputes arising out of the
interpretation of this Letter and/or the agreements attached hereto shall be
adjudicated by JAMS in
Seattle, WA applying the laws of the State of Washington. The prevailing party
in any such matter determined by JAMS shall be paid their costs and attorneys
fees.




4.          CONFIDENTIALITY.Any press releases or public announcements of activities relating to this
Letter and its attached agreements shall be approved by both parties
hereto.




5.          DISCLAIMEROFLIABILITIES.Except to the extent otherwise provided in this Letter andthe agreements attached hereto each party shall be solely responsible for
its own expenses, legal fees and consulting fees related to the negotiations
described in this Letter.






2


6.          BINDING
NATURE OF THIS LETTER.This Letter as a whole, is intended to constitute,
and shall constitute a legal and binding obligation, contract or agreement
between the parties, and is intended to be relied upon by any party as
constituting such.




7.          ENTIRE
AGREEMENT.This Letter and the other agreements attached hereto
constitutes the entire agreement, and supersedes any and all prior agreements
(including,without limitation, the Confidential Letter of Intent, dated August 13,
2008) between the parties with regard to the transactions described in this
Letter. No amendment of any provision of this Letter of the other agreements
attached hereto will be valid unless set forth in a written instrument signed by
both parties. In the event of any conflict between this Letter and any of the
other agreements attached hereto, the terms of the applicable agreement will
govern.




8.         
COUNTERPARTS.This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed an original, but all of which
taken together shall constitute one and the same document.






Sincerely,
  /s/ Ron Erickson
 Visualant, Inc.By: Ron
Erickson Its: Chairman




ACCEPTEDAND
AGREEDasof
 23,
OCT 2008
  RATLAB, LLC
  /s/  Tom Furness
 Dr. Tom
Furness, Manager









3




ExhibitA






Exclusive
Fields License Terms and Performance Criteria




Scope:
              World-wide,
      exclusive, irrevocable, assignable, sublicensable license tocommercialize
      and exploit the VSUL IP in the environmental, agricultural, gemology and
      jewelry fields of use. Without limiting the generality of the foregoing,
      the license will include the rights to: (a) use, develop, make, have made
      and distribute the VSUL IP world-wide for applications related to the
      Exclusive Fields; (b) use, develop, make, have made and distribute
      improvements or enhancements owned by the RATLAB world-wide for
      applications related to the Exclusive Fields; (c) exercise any other
      rights under the VSUL IP in the Exclusive Fields (including, without
      limitation, the right to take any action against any past, present or
      future infringement, misappropriation or a violation of the VSUL IP in the
      Exclusive Fields; and (d) sublicense any of the rights granted under the
      license for purposes of developing, manufacturing or distributing products
      related to the Exclusive
Fields.




Term:
              With
      respect to any patents included in the VSUL IP--The shorter of (i) 10
      yearsfrom
      date of grant or (ii) the remaining term of the patent. With respect to
      patented VSUL IP-10
years.




Royalty:
              5%
      of gross revenue received from actual sales of products incorporating
      oneor
      more patents included in the VSUL IP. This royalty obligation will cease
      upon expiration of the subject
patent(s).




Exclusivity
Conditions:




For the
Exclusive Field license to remain exclusive the RATLAB shall have completed thefollowing
within the specified time:




-Create
an affiliate for the purpose of commercializing the VSUL IP in the Exclusive
Fields within six months of the grant of the license.




-Obtain
funding of the affiliate so that it is operational on a stand alone basis within
twenty-four months of the grant of the license. (Stand alone is defined as being
able to support its own officers and staff, and conduct research either on its
own or in conjunction with the RATLAB.




-Develop
a demonstration unit of the technology within an Exclusive Field within three
years of the grant of the license.




-Deliver
the first royalty check to VSUL within five years of the grant of the
license.




In the
event that any of the aforementioned performance benchmarks are not achieved,
the Exclusive Field license shall become non-exclusive for the duration of its
term.








A-1




Exhibit B








Name
                    SHARES
      VESTED
                    SHARES
      TO VEST (per Schedule C)Furness,
      Thomas
                    700,000
                    500,000Schowengerdt,
      Brian
                    700,000
                    500,000Walker,
      Nicholas
                    80,000Melville,
    Ross
                    100,000Burstein,
    Bob
                    80,000Burnette,
    John
                    80,000Chinthammit,
      Winyu
                    20,000Schroder,
      Konrad
                    80,000Jones,
    Alden
                    10,000TOTAL
                    1,850,000
                    1,000,000










B-1


ExhibitC




VSUL
Common Stock Vesting Schedule for each of Furness and Schowengerdt




150,000
shall vest upon the completion of the demonstration to JFE and/or another
Japanese company
associated with Visualant KK.  In the case that this milestone cannot be
met with a Japanese
Company, alternatively a demonstration to any international company associated
with VSUL or Visualant KK.




150,000
shall vest upon the closing of a financing for the RATLAB affiliate that is
developing commercial
applications with in the Exclusive Fields.




200,000
shall vest upon the first commercial sale of a product developed pursuant to the
Exclusive Fields license.










C-1