<PAGE>

                                                                    EXHIBIT 10.3


                     AGREEMENT OF SETTLEMENT AND COMPROMISE

          Agreement of Settlement and Compromise (the "Agreement") dated as of
August __, 1996 by and between Peter Sayet ("Sayet"), on the one hand, and ILM
Acquisition L.P., M.P. Partners L.P., ILM Acquisition Corporation, LSJM
Partners, L.P., ILM N Corporation, Healthcare Venture Management Corporation,
Selig Zises, Glenn Meyers, Laurence Lurie and Institute for Laboratory Medicine,
Inc. n/k/a Specialty Retail Group, Inc. ("SRG") (collectively referred to herein
as the "Defendants"), on the other hand (Sayet and the Defendants are
collectively referred to herein as the "Parties").

          WHEREAS, the Parties desire to enter into this Agreement to avoid the
expenses and distraction of litigation, and in order to provide for certain
payments in full settlement and discharge of any and all claims which might have
been the subject of any pleadings in a matter entitled PETER SAYET V. INSTITUTE
FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS L.P., ILM
ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION, HEALTHCARE
VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS AND LAURENCE LURIE,
Case Number 92-03746(10), pending before the Circuit Court of the Eleventh
Judicial District in and for Dade County, Florida, or in any separate action
(the "Action"), upon the terms and conditions set forth herein;

<PAGE>

          NOW, THEREFORE, it is hereby agreed to, by and between the Parties
that:

          1.   (a)  Sayet and his heirs, executors, administrators, agents,
successors or assigns, covenants not to sue and will not raise, support or make
any claim in any court or otherwise against any of the Defendants, its current
or former officers, directors, employees, shareholders, affiliates, parents,
subsidiaries, agents, attorneys, successors and assigns or otherwise related
entities he has or may have, including any such claims arising out of any facts
or transactions that were raised or could have been raised in the Action or
arising from any act, action, inaction, occurrence or dealing between Sayet and
any of the Defendants, from the beginning of the world to the date of this
Agreement.

          b.  Sayet shall execute and deliver, contemporaneous with the
execution and delivery of this Agreement, a release in favor of each of the
Defendants in the form annexed hereto as Exhibit A.

          2.   (a)  Each of the Defendants, and their heirs, agents, successors
or assigns, covenants not to sue and will not raise, support or make any claim
in any court or otherwise against Sayet, his agents, successors or assigns or
otherwise related entities they have or may have, including any such claims
arising out of any facts or transactions that were raised or could have been
raised in


                                      - 2 -

<PAGE>

the Action or arising from any act, action, inaction, occurrence or dealing
between Sayet and any of the Defendants, from the beginning of the world to the
date of this Agreement.

          (b)  Each of the Defendants shall execute and deliver, contemporaneous
with the execution and delivery of this Agreement, a release in favor of Sayet
in the form annexed hereto as Exhibit B.

          3.   Contemporaneous with the execution of this Agreement, the Parties
shall execute a Stipulation of Dismissal with Prejudice (the "Stipulation")
directed to the Action in the form annexed hereto as Exhibits C.  Upon receipt
of the executed Stipulation, counsel for Defendants will file the Stipulation
before the Circuit Court of the Eleventh Judicial District in and for Dade
County, Florida.

          4.   Contemporaneous with the execution of this Agreement, SRG shall
issue an aggregate of 650,000 shares of restricted SRG common stock (the
"Shares") to Sayet and his designee, Howard Green, Esq. (collectively the
"Holders") (the "Settlement Payment").  Said compensation to Sayet shall be for
defamation damages.

          5.   a.  Promptly after the execution of this Agreement, Sayet and SRG
shall execute a Registration Rights Agreement, pursuant to which SRG is agreeing
to include the Shares in a Registration Statement which it will file with the
Securities and Exchange Commission (the "Registration


                                      - 3 -

<PAGE>

Statement") following the date of this Agreement.  A copy of the Registration
Rights Agreement is annexed hereto as Exhibit "D."  The Shares shall be
maintained in the Holders' own names and not in "street name" or any other
nominee account.  Upon issuance the certificates for the Shares shall contain
the usual and customary legend for unregistered shares which SRG shall remove
upon the effectiveness of the Registration Statement.  The certificates for the
Shares shall also contain the following legend:

     "The shares evidenced by this certificate are subject to an Agreement
     of Settlement and Compromise dated as of ____________, 1996 and may
     not be (i) encumbered or transferred except in a bona fide sale; or
     (ii) registered in nominee or street name, except as a result of a
     permitted sale under the Agreement.  A copy of said agreement is on
     file at the registered office of Specialty Retail Group, Inc."

             b.  Following the declaration of effectiveness of the Registration
Statement, with respect to each and every sale of Shares, each Holder (or his
representative) shall, within seven (7) business days of receipt of knowledge of
such sale but in no event greater than ten (10) business days following such
sale, notify SRG in writing (the "Sale Notice") setting forth the date of sale
and the


                                      - 4 -

<PAGE>

gross sale price per share and shall, immediately upon receipt of any statement
confirming the effectuation of such sale from a broker or other intermediary
(the "Confirmation"), send a copy of same to SRG.  The failure of any Holder to
deliver a timely Sale Notice or Confirmation to SRG in the manner hereinafter
provided shall entitle SRG to immediately reduce the Price Protection Pool (as
hereinafter defined) in an amount equal to twenty five cents for each unreported
Share sold as of the date of sale.  By way of example, if a Holder fails to give
SRG a Sales Notice with respect to a sale of 100,000 Shares, the Price
Protection Pool would be reduced by $25,000 (100,000 x $.25 = $25,000).

             c.  Additionally, with respect to each and every sale of Shares,
each Holder (or his representative) shall, within seven (7) business days of
such sale, forward to SRG, the Company Proceeds (as hereinafter defined), in
immediately available funds.  In the event any Company Proceeds are not paid to
SRG within said time period (a "Company Proceeds Breach"), SRG shall have the
right to take all appropriate action to (i) amend its Registration Statement or
take such other available steps to de-register such number of the breaching
Holder's Shares equal to the number of Shares which were the subject of the
Company Proceeds Breach (the "Breach Matching Shares"); (ii) redeem such Breach
Matching Shares from the breaching Holder for a


                                      - 5 -

<PAGE>

redemption price equal to the aggregate par value of the Breach Matching Shares;
(iii) instruct its transfer agent to place a stop transfer order on the Breach
Matching Shares;  and (iv) take all such further action as SRG may from time to
time in its sole discretion deem necessary to effectuate the intent of the
foregoing provisions.  Each of the Holders agree to promptly execute and deliver
to SRG such further instruments and documents and take such further action as
SRG may request upon the occurrence of a Company Proceeds Breach, including,
without limitation, execution and delivery to SRG of stock powers and original
stock certificates to effectuate the redemption of the Breach Matching Shares.
Any failure of a breaching Holder to cooperate with SRG upon the occurrence of a
Company Proceeds Breach shall be deemed a material breach hereunder.  Any
obligations of SRG in favor of the non-breaching Holder and of the non-breaching
Holder in favor of SRG shall not be affected, modified or impaired by any state
of facts or by the happening from time to time of any event including, without
limitation, a breach by the other Holder of his respective obligations
hereunder.

             d.  Any and all notices required to be given under this paragraph
shall be in writing and shall be sent by telecopier to SRG at: (i)  (203) 256-
4375, c/o Building Blocks Inc., 1720 Post Road East, Westport, CT 06880; (ii)
with a copy to (212) 391-0399, Littman Krooks & Roth, P.C.,


                                      - 6 -

<PAGE>

120 West 45th Street, New York, New York  10036 (Attn: Richard A. Roth, Esq.)
and to the Holders at (305) 371-6400, c/o Howard Green & Associates, 825 South
Bayshore Road, Suite 1846, Miami, FL 33131.  Notice shall be deemed given upon
it being sent.

          6.   In the event the Holders sell any Shares for $1.00 or more per
Share, the parties agree that the Holders shall cause SRG to receive 67% of the
proceeds for all amounts in excess of $1.00 per Share from said sales (the
"Company Proceeds") and the Holders shall retain 33% of the proceeds for all
such amounts.  SRG shall deposit 25% of the Company Proceeds in an interest
bearing escrow account administered by its attorneys Littman, Krooks & Roth,
P.C. pursuant to an escrow agreement annexed hereto as Exhibit "E".  The
escrowed Company Proceeds shall be released back to SRG upon the earlier to
occur of (i) the sale of all Shares or (ii) the second anniversary of the date
of this agreement.  For purposes of this Agreement, "Price Protection Pool"
shall be equal to the sum of: (i) $160,000 and (ii) 25% of any of the Company
Proceeds.

          7.   Upon, but only upon, the sale of ALL of the Shares by the
Holders, in bona fide open market or market related transactions which results
in gross proceeds to the Holders upon the sale of all such Shares of less than
$650,000, SRG shall pay to Sayet the shortfall between: (x) $650,000 and (y) the
aggregate sales proceeds, such amount


                                      - 7 -
<PAGE>

not to exceed the Price Protection Pool.  Notwithstanding the foregoing, in the
event any Shares are redeemed as provided in Section 5(c) (the "Redeemed
Shares"), then, in lieu of the payment set forth in the previous sentence, SRG
shall pay Sayet the shortfall between (x) an amount equal to $1.00 times the
Shares (other than the Redeemed Shares) sold ("Net Shares") and (y) the
aggregate proceeds from the Net Shares, such amount not to exceed a percentage
of the Price Protection Pool determined by the formula x/Price Protection Pool =
Net Shares/650,000.  Such payments shall be made within seven days after the
final sale of the Shares.  Any such payment which may be due and owing shall be
made by check payable to "Peter Sayet and Howard Green" and shall be forwarded
to Howard Green & Associates, 825 South Bayshore Road, Suite 1846, Miami, FL
33131.

          8.   Contemporaneous with the execution of the Registration Rights
Agreement, SRG and Sayet shall execute an Escrow Agreement which will provide
that SRG shall escrow 213,333 shares of restricted common stock, which will be
included in the Registration Statement referred to in paragraph 5, which shall
be held by a mutually acceptable escrow agent to be released only upon breach of
SRG to make payment contemplated by Paragraph 7 hereof.  A form of Escrow
Agreement is annexed hereto as Exhibit "F".

          9.   In the event SRG files for bankruptcy under Chapter 7 of the US
Bankruptcy Code, or Chapter 11


                                      - 8 -

<PAGE>

thereunder, if, but only if, Sayet's rights hereunder are materially impacted,
the parties agree that the entire transaction contemplated herein shall be
terminated and the General Releases be deemed null and void and the parties may
proceed with the litigation settled herein, but (i) any amounts realized by
prior sales of the Shares by the Holders shall be acknowledged by the parties in
any future settlement or litigation regarding these matters and (ii) the terms
of this Paragraph 9 shall expire after the earlier of two years or after the
Holders sell the Shares.

          10.  The parties hereto specifically agree that, at any trial or in
any other action or proceeding (except for claims relating directly to the
enforcement and performance of this Agreement), the entry into or performance of
this Agreement, the terms hereof, and any negotiations in pursuance hereof,
shall not be cited, referred to relied upon, offered or received in evidence by
them, nor shall they be admissible in evidence.

          11.  The Parties acknowledge that they have been represented by
independent legal counsel of their own choice throughout all of the negotiations
preceding the execution of this Agreement and that they have executed this
Agreement with the consent of, and after consultation with, such independent
legal counsel.  The Parties further acknowledge that they have read this
Agreement in its entirety, that they have had all of its provisions explained to
them by


                                      - 9 -


<PAGE>

their own counsel, who has answered any and all questions which they have asked
with regard to the meaning of any of the provisions thereof, and that he fully
understands all the terms and conditions contained herein.  Defendants further
acknowledges that they have signed this Agreement voluntarily and of their own
free will.

          12.  This Agreement shall be governed by and construed in accord with
the laws of the State of Florida.  Each of the Parties to this Agreement hereby
consents to the jurisdiction of the Circuit Court of the Eleventh Judicial
District in and for Dade County, Florida, for the purposes of commencing any
litigation or proceeding to enforce or interpret any provision of this
Agreement.

          13.  Except as set forth herein, there are no other agreements or
understandings with respect to the subject matter of this Agreement.  Any and
all prior discussions, agreements or understandings, whether oral or in writing,
are merged into and subsumed by this Agreement.  Each Exhibit in this Agreement
shall be construed to be a part hereof, as if fully set forth herein.  This
Agreement may not be modified in any manner, except in a writing signed by both
parties hereto.

          14.  This Agreement shall be binding upon and inure to the benefit of
the Parties, and to the employees, officers, directors, heirs, successors,
assigns and legal representatives of each party.  The Holders may not assign


                                     - 10 -

<PAGE>

their rights or obligations provided for under this Agreement without the
express written consent of SRG.

          15.  This Agreement may be executed in any number of identical
counterparts, each of which, when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.

          Accepted and agreed to by the following:



/s/ PETER SAYET                         Institute for Laboratory
-------------------------               Medicine, Inc.  n/k/a
Peter Sayet                             Specialty Reality Group, Inc.


/s/ HOWARD GREEN
-------------------------
Howard Green                            By:/s/ KEVIN GREEN
                                           --------------------------------
                                           Kevin Greene, Chairman of the
                                           Board of Directors


/s/ GLENN MEYERS                        /s/ LAURENCE LURIE
-------------------------               -----------------------------------
Glenn Meyers                            Laurence Lurie


                                     - 11 -

<PAGE>


ILM Acquisition L.P.                    MP Partners, L.P.

  By: MP Partners, L.P.,                  By: ILM Acquisition Corp.,
      General Partner                         General Partner

  By: ILM Acquisition Corp.,
      General Partner                     By: /s/ SELIG ZISES
                                              -----------------------------
                                              Selig Zises, President

  By: /s/ SELIG ZISES
      ------------------------
      Selig Zises, President



ILM Acquisition Corporation



By: /s/ SELIG ZISES                     /s/ SELIG ZISES
    --------------------------          -----------------------------------
    Selig Zises, President              Selig Zises



LSJM Partners, L.P.                     ILM N Corporation

  By: ILM N Corporation,
      General Partner



By: /s/ NANCY ZISES                     By: /s/ NANCY ZISES
    --------------------------              -------------------------------
    Nancy Zises, President                  Nancy Zises, President



Healthcare Venture Management
Corporation



By: /s/ KEVIN GREENE
    --------------------------
    Kevin Greene, an
    Authorized Representative


                                     - 12 -

<PAGE>

                                    EXHIBIT A


          TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT


                                   PETER SAYET


as RELEASOR, in consideration of the Settlement Amount as described in 
paragraph __ of the Settlement Agreement and other good and valuable 
consideration received from [Specialty Realty Group, Inc., Institute for 
Laboratory Medicine, Inc., ILM Acquisition L.P., M.P. Partners L.P., ILM 
Acquisition Corporation, LSJM Partners, L.P., ILM N Corporation, Healthcare 
Venture Management Corporation, Selig Zises, Glenn Meyers and Laurence Lurie] 
as RELEASEE, receipt whereof is hereby acknowledged, covenants not to sue and 
releases and discharges the RELEASEE, RELEASEE'S heirs, executors, 
administrators, successors and assigns from all actions, causes of action, 
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, 
specialties, covenants, contracts, controversies, agreements, promises, 
variances, trespasses, damages, judgments, extents, executions, claims and 
demands whatsoever in law, admiralty or equity, which the RELEASOR, 
RELEASOR's heirs, executors, administrators, successors and assigns ever had, 
now have or hereafter can, shall or may have from the beginning of the world 
to the date of this Release, including but not limited to any claim, 
counterclaim or cause of action which was or could have been asserted in, or 
which arise from any of the facts or transactions that form the basis for any 
claim or counterclaim,

<PAGE>

set forth in any pleading filed in an action which was pending in: PETER SAYET
V. INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS
L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION,
HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS, AND
LAURENCE LURIE, case number 92-03746(10), pending before the Circuit Court of
the Eleventh Judicial District in and for Dade County, Florida or in any
separate action excluding, however, any obligations of RELEASEE to RELEASOR set
forth in the Agreement of Settlement and Compromise entered into as of the ___
day of August, 1996.

          Whenever the text hereof requires, the use of singular number shall
include the appropriate plural number.

          This RELEASE may not be changed orally.

          IN WITNESS WHEREOF, the RELEASOR has hereunto set its hand and seal on
the ___ day of August, 1996.



                                        -----------------------------------
                                        Peter Sayet
STATE OF FLORIDA    )
                     ss.:
COUNTY OF DADE      )

          On this ___ day of August, 1996 before me personally came Peter Sayet
to me personally known, and known to me to be the same person described in and
who executed the foregoing Release, and he duly acknowledged to me that he
executed the same.


                                        -----------------------------------
                                             Notary Public


                                      - 2 -

<PAGE>

                                    EXHIBIT B


          TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT


                         [SPECIALTY RETAIL GROUP, INC.]


as RELEASOR, in consideration of the sum of ten ($10) dollars and other good and
valuable consideration received from Peter Sayet as RELEASEE, receipt whereof is
hereby acknowledged, covenants not to sue and releases and discharges the
RELEASEE, RELEASEE'S heirs, executors, administrators, successors and assigns
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims and demands whatsoever in law, admiralty or equity, which the
RELEASOR, RELEASOR's heirs, agents, successors and assigns ever had, now have or
hereafter can, shall or may have from the beginning of the world to the date of
this Release, including but not limited to any claim, counterclaim or cause of
action which was or could have been asserted in, or which arise from any of the
facts or transactions that form the basis for any claim or counterclaim, set
forth in any pleading filed in an action which was pending in: PETER SAYET V.
INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS
L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION,
HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS, AND
LAURENCE LURIE, case number 92-03746(10), pending before the


<PAGE>

Circuit Court of the Eleventh Judicial District in and for Dade County, Florida
or in any separate action excluding, however, any obligations of RELEASEE to
RELEASOR set forth in the Agreement of Settlement and Compromise entered into as
of the ___ day of August, 1996.

          Whenever the text hereof requires, the use of singular number shall
include the appropriate plural number.

          This RELEASE may not be changed orally.

          IN WITNESS WHEREOF, the RELEASOR has hereunto set its hand and seal on
the ___ day of August, 1996.

                                   [Specialty Retail Group, Inc.]



                                   By:
                                       ------------------------------------
                                        An Authorized Officer

STATE OF NEW YORK   )
                     ss.:
COUNTY OF NEW YORK  )

          On this ___ day of ______, 1996, before me personally came
to me personally known, and known to me and stated that he is the
of [Specialty Retail Group, Inc.], the RELEASOR described in the foregoing
Release, and that he was duly authorized to, and pursuant to such authorization
did, execute the foregoing Release on behalf of such RELEASOR.



                                        -----------------------------------
                                                Notary Public


<PAGE>

                                    EXHIBIT C

                                                  IN THE CIRCUIT COURT OF THE
                                                  11TH JUDICIAL CIRCUIT IN AND
                                                  FOR DADE COUNTY, FLORIDA

                                                  GENERAL JURISDICTION DIVISION

                                                  CASE NO. 92-03746

PETER SAYET,

     Plaintiff,

vs.

INSTITUTE FOR LABORATORY MEDICINE,
INC., ILM ACQUISITION L.P., M.P.
PARTNERS L.P., ILM ACQUISITION
CORPORATION, LSJM PARTNERS, L.P.,
ILM N CORPORATION, HEALTHCARE
VENTURE MANAGEMENT CORPORATION,
SELIG ZISES, GLENN MEYERS, and
LAURENCE LURIE,

     Defendants.
                                   /
-----------------------------------

                           STIPULATION AND NOTICE OF
                       VOLUNTARY DISMISSAL WITH PREJUDICE

          IT IS HEREBY STIPULATED AND AGREED, by and between the parties to the
above-captioned action, that whereas no party hereto is an infant or an
incompetent person for whom a committee has been appointed and no person not a
party has an interest in the subject matter of the action, the above-captioned
action, including all claims and counterclaims, be, and the same hereby is
dismissed with prejudice, without costs to either party as against the other.
This stipulation and notice may be filed without further notice with the Circuit
Court of the Eleventh


<PAGE>

Judicial District in and for Dade County, Florida and such Court retains
jurisdiction to enforce the terms of the settlement.

Dated:  New York, New York
        August    , 1996

                                                  Howard W. Green & Associates
                                                  Attorneys for Plaintiff
                                                  Peter Sayet
                                                  825 S. Bayshore Drive
                                                  Suite 1846
                                                  Miami, Florida 33131




                                                  By:
                                                     --------------------------
                                                     Howard W. Green, Esq.



                                                  LITTMAN KROOKS & ROTH, P.C.
                                                  Attorneys for Defendants
                                                  120 West 45th Street
                                                  New York, NY  10036
                                                  Telephone: (212) 768-4646




                                                  By:
                                                     --------------------------
                                                     Richard A. Roth,
                                                      admitted pro se


                                      - 2 -