<PAGE>
 
                                                                   Exhibit 10.22
                                                                   -------------


                        SETTLEMENT AND RELEASE AGREEMENT
                        --------------------------------

     This Settlement and Release Agreement ("Agreement") is made as of this 29th
day of May, 1996, by, between, and among the following undersigned parties: the
Federal Deposit Insurance Corporation as receiver of First Constitution Bank
(the "FDIC"); The Federal Deposit Insurance Corporation in its corporate
capacity (the Federal Deposit Insurance Corporation as receiver of First
Constitution Bank and in its corporate capacity are hereinafter collectively
referred to as the Federal Deposit Insurance Corporation); First Constitution
Financial Service Corporation ("First Service Corporation"); First Hamden
Corporation ("First Hamden"); Walter R. Miller, Jr.; John J. Crawford; Stuart J.
Danoff; Bernard A. Pellegrino, solely in his capacity as a former director of
First Constitution Bank and of First Constitution Financial Corporation;
Elizabeth P. Rich; Lawton G. Sargent, Jr.; Harry Burn, III; Marcus R. McCraven;
Claire Mellitz, solely in her capacity as Executrix for the Estate of Jacob
Mellitz; Martha Shattuck; Robert F. Carney; Robert L. Fiscus; Daniel Miglio;
Thomas C. Marron; and Sharon M. Oster (the foregoing individuals collectively
are referred to herein as the "settling Parties"); and The Aristotle Corporation
f/k/a First Constitution Financial Corporation ("Aristotle").
<PAGE>
 
                                    RECITALS
                                    --------
     WHEREAS:

     Prior to October 2, 1992, First Constitution Bank (the "Bank") was a state
chartered depository institution organized and existing under the laws of the
State of Connecticut;

     From about 1986 to the present First Hamden has been a corporation
organized and existing under the laws of the State of Connecticut.  Throughout
its existence and continuing to the present, First Hamden was and is a wholly
owned subsidiary of First Service Corporation, which was and is a wholly owned
subsidiary of the Bank;

     On October 2, 1992, the Superior Court of the State of Connecticut, upon
application of the Commissioner of Banking for the State of Connecticut,
declared the Bank insolvent and, pursuant to 12 U.S.C. (S) 1821(c), the FDIC was
appointed receiver.  In accordance with 12 U.S.C. (S) 1821(d), the FDIC
succeeded to all rights, titles, powers and privileges of the Bank, including
those with respect to its assets;

     Among the assets to which the FDIC as receiver succeeded were any and all
of the Bank's claims, demands, and causes of actions against its former
directors, officers, employees, attorneys and other professionals arising from
the performance, nonperformance and manner of performance of their respective
functions, duties and acts as directors and/or officers and/or employees and/or
attorneys of the Bank;

                                      -2-
<PAGE>
 
     Following the FDIC's appointment as the Bank's receiver, the FDIC removed
and replaced First Hamden's directors and officers, and First Hamden has since
requested that the FDIC act on its behalf with respect to the prosecution of
First Hamden's claims, demands, and causes of actions against its former
directors, officers, employees, attorneys and other professionals arising from
the performance, nonperformance and manner of performance of their respective
functions, duties and acts as directors and/or officers and/or employees and/or
attorneys of First Hamden;

     The Federal Deposit Insurance Corporation and First Hamden have asserted
claims against certain of the Settling Parties, who served at various times as
directors and/or officers of the Bank and/or First Hamden or as attorneys
representing the Bank or First Hamden;

     The FDIC has brought suit against Aristotle and others seeking declaratory
and other relief with respect to certain monies presently held in two escrow
accounts at Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch")
totalling in principal and accrued interest thereon in excess of $5.744 million
as of May 31, 1996 (the "Escrowed Funds").  The Escrowed Funds are held in
Merrill Lynch accounts numbered 812-07H26 and 812-07F31.  The FDIC's claims with
respect to the Escrowed Funds are now pending in the United States District
Court for the District of Connecticut in Federal Deposit Insurance Corporation,
                                         --------------------------------------
as Receiver of First Constitution Bank v. The Aristotle Corporation. et al.,
--------------------------------------------------------------------------- 
3:95 CV 00684 (TFGD) (the "Escrowed Funds 

                                      -3-
<PAGE>
 
Action"). Aristotle has asserted counterclaims against the FDIC in the Escrowed
Funds Action;

     Article IX of Aristotle's Amended By-Laws provides for Aristotle to
indemnify some or all of the Settling Parties (the "Indemnity") according to the
terms, provisions and conditions of the Indemnity.  Some or all of the Settling
Parties have made claims under the Indemnity;

     American Casualty Company of Reading, Pennsylvania ("American Casualty")
issued Directors' and Officers' Liability Insurance Policy Including Bank
Reimbursement number ZEA 201587098 (the "D&O Policy"), which insured the
directors and officers of the Bank according to the terms, provisions and
conditions of the D&O Policy.  Some or all of the Settling Parties have made
claims under the D&O Policy.  On February 27, 1996, American Casualty filed a
Second Amended Complaint against the FDIC, certain of the Settling Parties and
Aristotle seeking a declaration of American Casualty's rights and obligations
under the D&O Policy with regard to the FDIC's claims.  That action is now
pending in the United States District Court for the District of Connecticut in
American Casualty Company of Reading, Pennsylvania v. The Aristotle Corporation,
--------------------------------------------------------------------------------
et al., 3:95 CV 02569 (RNC) (the "Coverage Action"); and
------                                                  

     The undersigned parties deem it in their best interest to enter into this
Agreement to avoid the uncertainty, trouble, and expense of further litigation.

                                      -4-
<PAGE>
 
     NOW, THEREFORE, in consideration of the promises, undertakings, payments,
and releases stated herein, the sufficiency of which consideration is hereby
acknowledged, the undersigned parties agree, each with the other, as follows:


                        SECTION I: Payments to the FDIC

     A.  As an essential covenant and condition to this Agreement the parties
hereto agree that, upon the execution of an original, or originals in
counterpart, by Aristotle and the Federal Deposit Insurance Corporation, the
Federal Deposit Insurance Corporation and Aristotle shall cause the sum of
$2,000,000 to be distributed from the Escrowed Funds and paid to Aristotle by
wire transfer, together with an amount equal to all interest and dividend income
earned as of the disbursement date on account number 812-07F31.

     B.  As an essential covenant and condition to this Agreement the parties
hereto agree that, upon the execution of an original, or originals in
counterpart, by Aristotle and the Federal Deposit Insurance Corporation, the
Federal Deposit Insurance Corporation and Aristotle shall cause all of the
remaining monies in the Escrowed Funds, in the approximate amount of $3,744,000,
to be distributed therefrom and paid to the FDIC by wire transfer.

                                      -5-
<PAGE>
 
                     SECTION II:  Stipulations of Dismissal

     As an essential covenant and condition to this Agreement, contemporaneously
with execution of this Agreement by each of the undersigned parties and
distribution and receipt of the Escrowed Funds in accordance with Section I.
hereof, the FDIC and Aristotle shall each dismiss the Escrowed Funds Action as
against the other, and the undersigned parties shall obtain the dismissal of the
Coverage Action.  The undersigned parties agree to have stipulations entered
providing that the dismissals set forth above shall be with prejudice as to the
Settling Parties and Aristotle, with each party to bear its own costs as they
were originally incurred.


                             SECTION III:  Releases

     A.  Release of the Settling Parties by the Federal Deposit Insurance
         ----------------------------------------------------------------
Corporation, First Service Corporation and First Hamden.
------------------------------------------------------- 

     Effective upon distribution and receipt of the Escrowed Funds pursuant to
Section I. hereof and dismissals of the Escrowed Funds Action and Coverage
Action pursuant to Section II. hereof, and except as provided in Section III.E.
below, the Federal Deposit Insurance Corporation, First Service Corporation and
First Hamden, for themselves and their successors and assigns, hereby release
and discharge the Settling Parties and their heirs, executors, administrators,
representatives, successors and assigns, from any and all claims, demands,

                                      -6-
<PAGE>
 
obligations, damages, actions, and causes of action, direct or indirect, in law
or in equity, belonging to the Federal Deposit Insurance Corporation and/or to
First Service Corporation and/or to First Hamden, that arise from or relate to,
the performance, nonperformance, or manner of performance of the Settling
Parties' respective functions, duties and actions as officers and/or directors
of the Bank and/or of any subsidiary of the Bank, including, without limitation,
First Service Corporation and First Hamden; provided, however, that
                                            --------               
notwithstanding the foregoing or any other provision of this Agreement, the
release set forth in this paragraph in no way releases or discharges Bernard A.
Pellegrino and his heirs, executors, administrators, representatives, successors
and assigns, and/or the Pellegrino Law Firm, P.C. or any of its present or
former members, shareholders or employees, from those claims and causes of
action arising out of or relating to the performance, non-performance or manner
of performance of their respective functions, duties and actions as counsel to
the Bank and/or to any subsidiary of the Bank, including, without limitation,
First Service Corporation and First Hamden, and shall have no effect thereon.

     B.  Release of the Federal Deposit Insurance Corporation, First Service
         -------------------------------------------------------------------
Corporation and First Hamden by the Settling Parties.
---------------------------------------------------- 

     Effective simultaneously with the release granted in Section III.A. above,
the Settling Parties, on behalf of themselves individually, and their respective
heirs, executors, 

                                      -7-
<PAGE>
 
administrators, agents, representatives, successors and assigns, hereby release
and discharge the Federal Deposit Insurance Corporation, First Service
Corporation and First Hamden, and their employees, officers, directors,
representatives, successors and assigns, from any and all claims, demands,
obligations, damages, actions, and causes of action, direct or indirect, in law
or in equity, that arise from or relate to the Bank and/or to First Service
Corporation and/or to First Hamden or to the performance, nonperformance, or
manner of performance of the Settling Parties' respective functions, duties and
actions as officers and/or directors of the Bank and/or of any subsidiary of the
Bank, including, without limitation, First Service Corporation and First Hamden.

     C.  Release of Aristotle by the Federal Deposit Insurance Corporation,
         ------------------------------------------------------------------
First Service Corporation and First Hamden.
------------------------------------------ 

     Effective simultaneously with the releases granted in Section III.A. and
III.B. above, the Federal Deposit Insurance Corporation, First Service
Corporation and First Hamden, on behalf of themselves and their successors and
assigns, hereby release and discharge Aristotle, its parents, subsidiaries and
affiliates, and their respective employees, officers, directors, agents,
representatives, successors and assigns from any and all claims, demands,
obligations, damages, actions, and causes of action, direct or indirect, in law
or in equity, that arise from or relate to the Bank and/or to First Service
Corporation and/or to First Hamden, with the exception of claims by or against
the 

                                      -8-
<PAGE>
 
United States Internal Revenue Service and arising out of any tax years not
the subject of the Escrowed Funds Action.

     D.  Release of the Federal Deposit Insurance Corporation, First Service
         -------------------------------------------------------------------
Corporation and First Hamden by Aristotle.
----------------------------------------- 

     Effective simultaneously with the release granted in Section III.C. above,
Aristotle, for itself and for its employees, officers, directors, agents,
representatives, successors and assigns, and on behalf of its parents,
affiliates and subsidiaries and their successors and assigns, hereby releases
and discharges the Federal Deposit Insurance Corporation and First Hamden and
their employees, officers, directors, representatives, successors and assigns,
from any and all claims, demands, obligations, damages, actions, and causes of
action, direct or indirect, in law or in equity, that arise from or relate to
the Bank and/or to First Service Corporation and/or to First Hamden, with the
exception of claims by or against the United States Internal Revenue Service and
arising out of any tax years not the subject of the Escrowed Funds Action.

     E.  Express Reservations From Releases by the Federal Deposit Insurance
         -------------------------------------------------------------------
Corporation, First Service Corporation and First Hamden.
------------------------------------------------------- 

     1.  Notwithstanding any other provision hereof, by this Agreement, the
Federal Deposit Insurance Corporation, First Service Corporation and First
Hamden do not release, and expressly preserves fully and to the same extent as
if the Agreement had not been executed, any claims or causes of action:

                                      -9-
<PAGE>
 
         a.   against the Settling Parties or Aristotle or any other person or
entity for liability, if any, incurred as the maker, endorser or guarantor of
any promissory note or indebtedness payable or owed by them to the Federal
Deposit Insurance Corporation, the Bank, other financial institutions, or any
other person or entity, including without limitation any claims acquired by the
Federal Deposit Insurance Corporation as successor-in-interest to the Bank or
any person or entity other than the Bank;

         b.   against any person or entity not expressly released in this
Agreement; and

         c.   which are not expressly released in Sections III.A. and III.C.
above.

     2.  Notwithstanding any other provision hereof, nothing in this Agreement
shall be construed or interpreted as limiting, waiving, releasing or
compromising the ability of the Federal Deposit Insurance Corporation to use any
act or omission of all or some of the Settling Parties in considering or taking
any supervisory, administrative, and/or enforcement action against any or all of
the Settling Parties in any proceeding related to any insured depository
institution other than the Bank.

     3.  Notwithstanding any other provision hereof, this Agreement does not
purport to waive, or intend to waive, any claims which could be brought by the
United States through either the Department of Justice, the United States
Attorney's Office 

                                      -10-
<PAGE>
 
for the District of Connecticut or any other federal judicial
district.

     F.  Potential Bar Order.
         --------------------

     If at any time after the execution of this Agreement, a third-party claim
for contribution or indemnification, or any other claim seeking to allocate or
apportion damages against the Settling Parties, has been asserted against any of
the Settling Parties, the FDIC shall not oppose a motion by a Settling Party for
a bar order.  The FDIC and its successors and assigns understand and hereby
agree that such a motion would seek an order that the settlement embodied in
this Agreement is in good faith within the meaning of the law of the state in
which the bar order is sought, or federal common law, or any other applicable
law, and that all claims against the Settling Party which have been, or could
have been or could be asserted against the Settling Party arising under federal
or state law based on, relating to or arising from the Settling Party's role as
an officer and/or director of the Bank, or any of its subsidiaries, including,
without limitation, claims for contribution, indemnity, reimbursement or any
other form of monetary relief, are extinguished, discharged, satisfied, and/or
otherwise barred and unenforceable; provided, however, that notwithstanding the
                                    --------                                   
foregoing, the order referenced herein shall not in any way release or discharge
or otherwise bar and/or extinguish any claims and causes of action against
Bernard A. Pellegrino and his heirs, executors, administrators, representatives,
successors and 

                                      -11-
<PAGE>
 
assigns, and/or the Pellegrino Law Firm, P.C. or any of its
present or former members, shareholders or employees, which arise out of or
relate to the performance, non-performance or manner of performance of their
respective functions, duties and actions as counsel to the Bank and/or to any
subsidiary of the Bank, including, without limitation, First Service Corporation
and First Hamden, and said order shall have no effect thereon.  The FDIC further
understands and agrees that the Settling Party moving for such an order will
submit a copy of this Agreement in support of that motion.  The FDIC further
agrees that if, subsequent to the execution of this Agreement, a judgment is
entered in favor of the FDIC against any of the Settling Parties with respect to
any of the matters within the scope of the release of the Settling Parties
contained in this Agreement, the FDIC will forbear from exercising its rights of
recovery from the Settling Parties pursuant to such judgment.


              SECTION IV:  Waiver of Dividends and Withdrawals
                               of Proofs of Claim

     A.  To the extent, if any, that any or all of the Settling Parties are or
were shareholders of the Bank and by virtue thereof are or may have been
entitled to a dividend, payment, or other pro rata distribution upon resolution
of the receivership of the Banks they hereby knowingly assign to the FDIC any
and all rights, titles and interest in and to any and all such dividends,
payments or other pro rata distributions.

                                      -12-
<PAGE>
 
     B.  To the extent, if any, that any or all of the Settling Parties filed
Proofs of Claim with or in any other manner asserted claims against the Federal
Deposit Insurance Corporation, any and all such Proofs of Claim and/or claims
are hereby deemed withdrawn in their entirety and shall be of no further force
or effect, regardless of whether any such proofs of claims or claims had been
previously allowed or otherwise approved.


          SECTION V:  Representations and Acknowledgments

          A.   No Admission of Liability.  The undersigned parties each
               -------------------------      
acknowledge and agree that the matters set forth in this Agreement constitute
the settlement and compromise of disputed claims, and that this Agreement is not
an admission or evidence of liability by any of them regarding any claim.

          B.   Execution in Counterparts.  This Agreement may be executed
               -------------------------                 
in counterparts by one or more of the parties named herein and all such
counterparts when so executed shall together constitute the final Agreement, as
if one document had been signed by all parties hereto; and each such
counterpart, upon execution and delivery, shall be deemed a complete original,
binding the party or parties subscribed thereto upon the execution by all
parties to this Agreement.

          C.   Binding Effect.  Each of the undersigned persons represents and
               --------------                           
warrants that they are a party hereto or are authorized to sign this Agreement
on behalf of the respective
                                      -13-
<PAGE>
 
party, and that they have the full power and authority to bind such party to
each and every provision of this Agreement. This Agreement shall be binding upon
and inure to the benefit of the undersigned parties and their heirs, executors,
administrators, representatives, successors and assigns.

          D.    Choice of Law.  This Agreement shall be interpreted, construed
                -------------                           
and enforced according to applicable federal law.

          E.    Entire Agreement and Amendments.  This Agreement constitutes
                -------------------------------       
the entire agreement and understanding between and among the undersigned parties
concerning the matters set forth herein. This Agreement may not be amended or
modified except by another written instrument signed by the party or parties to
be bound thereby, or by their respective authorized attorney(s) or other
representative(s).

          F.    Reasonable Cooperation.
                ---------------------- 
     The undersigned parties agree to cooperate in good faith to effectuate all
the terms and conditions of this Agreement, including doing or causing their
agents and attorneys to do, whatever is reasonably necessary to effectuate the
signing, delivery, execution, filing, recording, and entry, of any documents
necessary to conclude the Escrowed Funds Action and the Coverage Action, to
effect the payments and distribution of funds set forth in Section I. hereof, to
effect the withdrawal of the Proofs of Claims described in Section IV. hereof
and to otherwise perform the terms of this Agreement.

                                      -14-
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by each of them or their duly authorized representatives on the dates
hereinafter subscribed.

                                     FEDERAL DEPOSIT INSURANCE
                                     CORPORATION as receiver of
                                     First Constitution Bank and in
                                     its corporate capacity

                                     By: /s/ Catherine Topping
                                        ------------------------------------

                                     Title: Counsel
                                           ---------------------------------

                                     Print Name: 
                                                ----------------------------

                                     Date:   August 20, 1996
                                          ----------------------------------


                                     FIRST CONSTITUTION FINANCIAL
                                     SERVICE CORPORATION


                                     By: /s/ W. Jerry Dano
                                         -----------------------------------

                                     Title: President
                                           ---------------------------------

                                     Print Name:
                                                ----------------------------

                                     Date: August 15, 1996
                                          ----------------------------------


                                     FIRST HAMDEN CORPORATION


                                     By: /s/ W. Jerry Dano
                                        ------------------------------------

                                     Title: President
                                           ---------------------------------

                                     Print Name:
                                                ----------------------------

                                     Date:   August 15, 1996
                                          ----------------------------------

                                      -15-
<PAGE>
 
                                     THE ARISTOTLE CORPORATION



                                     By: /s/ John J. Crawford
                                        ------------------------------------

                                     Title: Chairman
                                           ---------------------------------

                                     Print Name:
                                                ----------------------------

                                     Date: August 14, 1996
                                          ----------------------------------


                                     /s/ Walter R. Miller, Jr.
                                     ---------------------------------------
                                     WALTER R. MILLER, JR.

                                     /s/ John J. Crawford
                                     --------------------------------------- 
                                     JOHN J. CRAWFORD

                                     /s/ Stuart J. Danoff
                                     ---------------------------------------
                                     STUART J. DANOFF


                                     /s/ Bernard A. Pellegrino
                                     ---------------------------------------
                                     BERNARD A. PELLEGRINO, solely
                                     in his capacity as a former
                                     director of First Constitution
                                     Bank and of First Constitution
                                     Financial Corporation


                                     /s/ Elizabeth P. Rich
                                     ---------------------------------------
                                     ELIZABETH P. RICH

                                     /s/ Lawton G. Sargent, Jr.
                                     ---------------------------------------
                                     LAWTON G. SARGENT, JR.

                                     /s/ Harry Burn, III
                                     ---------------------------------------
                                     HARRY BURN, III

                                     /s/ Marcus R. McCraven
                                     ---------------------------------------
                                     MARCUS R. MCCRAVEN

                                      -16-
<PAGE>

                                     /s/ Claire Mellitz 
                                     ---------------------------------------
                                     CLAIRE MELLITZ, solely in her capacity 
                                     as Executrix for the Estate of Jacob 
                                     Mellitz

                                     /s/ Martha Shattuck
                                     --------------------------------------- 
                                     MARTHA SHATTUCK
 
                                     /s/ Robert F. Carney
                                     ---------------------------------------
                                     ROBERT F. CARNEY

                                     /s/ Robert L. Fiscus
                                     ---------------------------------------
                                     ROBERT L. FISCUS

                                     /s/ Daniel Miglio
                                     ---------------------------------------
                                     DANIEL MIGLIO

                                     /s/ Thomas C. Marron
                                     --------------------------------------
                                     THOMAS C. MARRON

                                     /s/ Sharon M. Oster
                                     --------------------------------------
                                     SHARON M. OSTER

                                      -17-