<PAGE>
 
                                                                   EXHIBIT 10.17

                             EMPLOYMENT AGREEMENT

AGREEMENT made as of this 12th day of October 1995 among and between Karen C.
Keenan ("Employee"), Investors Financial Services Corp., a Delaware Corporation
("IFSC"), and Investors Bank & Trust Company, a Massachusetts chartered trust
company having its principal place of business at 89 South Street, Boston,
Massachusetts (the "Company").

     WHEREAS, the Company believes it to be to its advantage to ensure that the
Employee renders services to the Company as hereinafter provided;

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:

1.   Position and Responsibilities; Chief Financial Officer.  During the term of
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this Agreement, the Employee shall serve as Chief Financial Officer of the
Company.  The Employee will have such responsibilities, duties and authority as
she has as of the date hereof in her position as Chief Financial Officer of the
Company.  Employee will also have such other responsibilities, duties and
authority as may from time to time be assigned to her that are consistent with
her status as Chief Financial Officer of the Company.  In the event that at any
time during the term of this Agreement the Company shall become a wholly-owned
subsidiary of IFSC, a Delaware corporation (such event referred to herein as the
"Holding Company Event"), the Employee agrees in addition to serve as Chief
Financial Officer of IFSC, and any references to the Company in Sections 1,
2(D), 4, 6, 9, 10 and 11 of this Agreement shall also include IFSC in the event
that the Holding Company Event has occurred.  The Employee shall at all times
report to, and only to, and her activities shall at all times be subject to the
direction and control of, the President of the Company, and the Employee shall
exercise such powers and comply with and perform, faithfully and to the best of
her ability, such directions and duties in relation to the business and affairs
of the Company as may from time to time be vested in or requested of her by the
President and the Board.  The Employee agrees to devote substantially all of her
business time, attention and services to the diligent, faithful and competent
discharge of such duties for the successful operation of the Company's business.
During the term hereof, the Employee will not have any managerial or operations
responsibility, other than service on a Board of Directors, in any enterprise,
firm, corporation, trust or other business entity other than the Company;
provided, however, that nothing herein shall prevent the ownership by the
Employee of an equity interest in any business entity, provided that such
ownership does not involve any managerial or operational responsibility other
than serving on the Board of Directors of a corporation.  Any directorships of
corporations other than the Company must be approved in writing by the Board of
Directors of the Company in advance.  At all times during the term of this
Agreement, the Employee's primary place of employment shall be within fifteen
(15) miles of Boston, Massachusetts.

     2.   Compensation: Salary, Bonuses, Equity Participation and Other Benefits
          ----------------------------------------------------------------------
During the term of this Agreement, the Company shall pay the Employee the
following compensation, including the following salary, bonus and other fringe
benefits:
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                                      -2-

     (A)  Salary.  In consideration of the services to be rendered by the
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Employee to the Company, and IFSC upon and after the occurrence of the Holding
Company Event, the Company initially will pay to the Employee an annual salary
of $91,900 (Employee's "Base Rate").  Such salary shall be payable in conformity
with the Company's customary practices for executive compensation as such
practices shall be established or modified from time to time.  Salary payments
shall be subject to all applicable federal and state withholding, payroll and
other taxes.  After December 31, 1995, the Employee shall be paid at a Base Rate
to be determined by the Board of Directors of the Company or the Compensation
Committee thereof in conformity with the Company's customary practices for
executive compensation as such practices shall be established from time to time,
provided, however, that Employee's Base Rate during the term of this Agreement
shall be no lower than $91,900.  The Employee's Base Rate shall be reevaluated
by the Board of Directors or the Compensation Committee thereof, and may be
increased as appropriate, within thirty (30) days of December 31, 1996 and each
December 31 thereafter, but in no circumstances shall be made lower than the
Base Rate that was established on or around the prior December 31 for the most
                               --                                             
recently concluded calendar year.

     (B)  Fringe Benefits.  The Employee will be entitled to be reimbursed for
          ---------------                                                     
all of her business-related expenses, including but not limited to telephone
usage and business related travel expenses.  The Employee also will be entitled
to participate on the same basis with all other senior management employees of
the Company in the Company's benefits package generally available for other
officers and senior management employees of the Company, with respect to group
health, disability and life insurance programs, but in any event providing
Employee with benefits which are at least substantially equivalent to those
which she now receives, as set forth on Schedule A. In addition, the Employee
will be entitled to four (4) weeks vacation during each calendar year, which
shall accrue if and to the extent unused.

     (C)  Performance Based Bonus.  For the year ending December 31, 1995, the
          -----------------------                                             
Employee shall receive a cash bonus calculated as set forth on Schedule B,
provided that such amount shall be adjusted based upon the actual pre-tax net
operating income, determined in accordance with generally accepted accounting
principles, consistently applied.  Such bonus shall be payable no later than
January 15, 1996.  For each successive twelve month period thereafter ending
December 31 ("Year End"), in addition to the amounts payable under Section 2(A)
above, the Employee shall receive a cash bonus, the amount of such bonus to be
determined pursuant to such bonus plan as may from time to time hereafter be
adopted by the Board of Directors of the Company or the Compensation Committee
thereof, and payable at such times as the Board of Directors shall establish,
provided that the Employee continues to be employed by the Company on each such
Year End.  Such bonus payments shall be subject to all applicable federal, state
and local withholding, payroll and other taxes, as required by law.

     (D)  Equity Participation.
          -------------------- 

          (i)    The Employee shall be entitled to participate annually in the
     1995 Stock Plan and any future equity compensation plan that is generally
     made available to any other senior executive of the Company, in such
     amounts and on such terms as are 
<PAGE>
 
                                      -3-

     determined appropriate thereunder commensurate with her position and
     performance, and in accordance with all of the terms and conditions of such
     plan.

          (ii)   The Company shall, as of the date of this Agreement, grant to
     Employee a stock option to purchase 10,000 shares of IFSC common stock,
     which option shall (a) be issued pursuant to the 1995 Stock Plan, (b) have
     an exercise price per share of the price to public in the Company's
     currently Proposed public offering, (c) become exercisable in 48 equal
     monthly installments commencing on the date of the aforesaid initial public
     offering (the "IPO Date") (except in the event of a Change of Control (as
     defined below), in which case such option shall become fully exercisable
     immediately prior, but subject, to such Change of Control (unless such
     Change of Control is as a result of a tender offer, in which case the
     option shall become fully exercisable in a timely manner such that Employee
     may participate in such tender offer at any stage), or in the event
     Employee's employment should end as a result of death, disability or by the
     Company without cause (as defined below) or by the Employee with Good
     Reason (as defined below), in which case such option shall be exercisable
     as of such termination and thereafter during the exercise-period for that
     number of shares as to which such option would have been exercisable as of
     one year after such date of termination if Employee had remained so
     employed), (d) be exercisable for six (6) months following any termination
     of Employee's employment (except insofar as such option is an incentive
     stock option, in which case such exercise period shall be ninety (90) days,
     and in any event except in the case Employee's employment should end as a
     result of death or disability, in which case, such option shall be
     exercisable for one year after the date of termination), (e) be an
     incentive stock option to the extent permitted by the Internal Revenue Code
     of 1986, as amended, and otherwise a nonqualified stock option and (f)
     otherwise have such terms and conditions as are set forth in the stock
     option agreement attached hereto as Exhibit A (the "Stock Option
                                         ---------                   
     Agreement").

          (iii)  The Company shall, as of the date of this Agreement, issue to
     Employee 7,500 shares of IFSC common stock, which (a) issuance shall be
     subject to the 1995 Stock Plan, (b) be subject to repurchase by the
     Company, which right of repurchase shall lapse in 60 equal monthly
     installments commencing on the IPO Date (except in the event of a Change of
     Control (as defined below), in which case such right of repurchase shall
     lapse fully immediately prior, but subject, to such Change of Control
     (unless such Change of Control is as a result of a tender offer, in which
     case such right of repurchase shall lapse fully in a timely manner such
     that Employee may participate in such tender offer at any stage), or in the
     event Employee's employment should end as a result of death, disability or
     by the Company without cause or by the Employee with Good Reason, in which
     case such right of repurchase shall lapse as of such termination for that
     additional number of shares as which such right of repurchase would have
     lapsed as of one year after such date of termination if Employee had
     remained so employed) and (c) otherwise be subject to such terms and
     conditions as are set forth in the restricted stock agreement attached
     hereto as Exhibit B (the "Restricted Stock Agreement").
               ---------                                    
<PAGE>
 
                                      -4-

          (iv)   The Company agrees that with respect to all options and
     restricted shares to be granted by the Company, upon grant and during the
     term of such options and the vesting period of such restricted shares, the
     Company shall use its reasonable efforts to comply with the requirements of
     Rule 16b-3, promulgated pursuant to the Securities Exchange Act of 1934, as
     amended, as such rule shall be in effect from time to time, or with any
     successor provision ("Rule 16b-311) such that such options and restricted
     shares shall be afforded the benefits of Rule 16b-3.

          (v)    The Company agrees that it shall use its best efforts to file
     and cause to become and remain effective a registration statement on Form 
     S-8 (or a successor form) such that either the resale by Employee of
     restricted shares granted to Employee by the Company or the grant of such
     shares and the purchase of shares by Employee upon the exercise of the
     options to be granted to Employee shall be registered under the; Securities
     Act of 1933, as amended, or any successor provision.

     3.   Term.  The term of this Agreement shall commence on the date first
          ----                                                              
above written and shall terminate on the earlier to occur of (i) three (3) years
from such date, or, if later, three (3) years from the date upon which the Board
of Directors last renewed the term as provided below; (ii) the death, or upon
written notice from the Company to Employee, if Employee is permanently
disabled, or (iii) the occurrence of any of the circumstances described in
Section 4 hereof (the "Expiration Date").  For the purposes of this Agreement,
the Employee shall be deemed to be permanently disabled if a physician, chosen
by the Company, and reasonably acceptable to Employee or her legal
representative, determines in good faith that as a result of a physical or
mental condition caused by injury, illness, disease or mental disorder the
Employee is unable to perform her duties hereunder for any one hundred twenty
(120) work days out of any 365-day period or for ninety (90) consecutive days in
any 365-day period.  Within thirty (30) days of December 31, 1996, and then
within thirty (30) days of each December 31 thereafter, the Board of Directors
shall consider the extension of the term of this Agreement to three years from
December 31.  Each such extension shall be effective only when agreed to by the
Employee.  In the event that the Board of Directors fails to extend the term of
this Agreement, the Employee may terminate this Agreement, at her option, in
accordance with Section 4(A) hereof, notwithstanding any other term hereof.

     4.   Termination.  The Employee's employment under this Agreement, and this
          -----------                                                           
Agreement, subject to Section 16 hereof, may be terminated as follows:

          (A)  At the Employee's Option: The Employee may terminate her
               -------------------------                               
     employment, with or without Good Reason, at any time upon at least sixty
     (60) days' advance written notice to the Company.  In the event of a family
     emergency, including but not limited to the death or incapacity of an
     immediate family member, or upon other circumstances deemed sufficient by a
     majority of the Board of Directors, Employee may terminate her employment
     upon fifteen (15) days' advance written notice to the Company.  In the
     event of termination at the Employee's option without Good Reason, the
     Employee shall be entitled to no severance or other termination benefits
     after the expiration of the sixty-day period referred to above, except as
     otherwise required by law.  In the event the Employee 
<PAGE>
 
                                      -5-

     should terminate her employment for Good Reason (as defined below), the
     Company agrees to pay the Employee a severance payment of (i) the greater
     of (x) the remaining number of months in the term of this Agreement divided
     by twelve then multiplied by the Employee's Base Rate immediately prior to
     such termination or (y) one year of Employee's salary at the Base Rate
     immediately prior to such termination to be paid in full, less any
     applicable taxes and withholdings, within fifteen (15) days of the
     Employee's last day of employment with the Company, and (ii) the Employee's
     cost of continuing medical and other health insurance coverage for Employee
     and her family substantially as provided immediately prior to such
     termination during such one year period. The Company's responsibility for
     such cost shall not exceed twice the cost it paid for such coverage
     immediately prior to Employee's termination. As used in this Agreement,
     "Average Annual Bonus" shall mean the sum of Employee's Annual Bonus
     immediately prior to such termination and Employee's Annual Bonus for the
     immediately preceding fiscal year, divided by two. As used in this
     Agreement, a "Good Reason" shall mean any of the following:

          (i)    a material change by the Company in Employee's authority,
     functions, duties or responsibilities as Chief Financial Officer of the
     Company (including, without limitation, material changes in the control or
     structure of the Company) which would cause Employee's position with the
     Company to become of less responsibility, importance or scope than
     Employee's position as of the date of this Agreement, provided that such
     material change is not solely as a result of a Holding Company Event or in
     connection with a termination of Employee's employment hereunder for cause
     in accordance with Section 4B; or

          (ii)   a failure by the Company to comply in a material respect with
     any material provision of this Agreement, the Stock Option Agreement, the
     Restricted Stock Agreement or any other agreement between the parties,
     which has not been cured within fifteen (15) days after notice of such
     noncompliance has been given by Employee to the Company.

          (B)    At the election of the Company for Cause.  The Company may,
                 ----------------------------------------                   
     immediately and unilaterally, terminate the Employee's employment hereunder
     "for cause" at any time during the term of this Agreement.  Termination of
     the Employee's employment by the Company shall constitute a termination
     "for cause" under this Agreement if such termination is for one or more of
     the following causes, as found by the Board of Directors of the Company by
     a resolution duly adopted in good faith by a majority of its members after
     notice to the Employee and an opportunity to be heard before the Board of
     Directors with counsel.  As used herein, "cause" shall mean:

          (i)    the continued failure or continued refusal of the Employee to
     render services to the Company in accordance with her obligations under
     this Agreement or a reasonable determination by a majority of the Board of
     Directors that the Employee has performed inadequately the duties of her
     employment, in each case continuing for fifteen 
<PAGE>
 
                                      -6-

     (15) days after Employee's receipt of written notice to the Employee
     specifying the alleged failure, refusal or performance inadequacy;

          (ii)   gross negligence, dishonesty, breach of fiduciary duty or
     material breach of the material terms of this Agreement or the other
     agreements executed in connection herewith;

          (iii)  the commission by the Employee of an act of fraud,
      embezzlement or deliberate disregard of the rules or policies of the
      Company or the commission by the Employee of any other action with the
      intent to injure materially the Company;

          (iv)   the conviction by the Employee of a felony, either in
      connection with the performance of her obligations hereunder or which
      shall materially adversely affect the Employee's ability to perform her
      obligations hereunder; or

          (v)    the commission of an act which constitutes unfair competition
      with the Company or which induces any customer of the Company to breach a
      contract with the Company.

      In the event of a termination "for cause" pursuant to the provisions of
clauses (ii) through (v) above, inclusive, the Employee shall not be entitled to
severance or other termination benefits, except as required by law. In the event
of a termination "for cause" pursuant to the provisions of clause (i), the
Company, notwithstanding the remaining term of this Agreement, agrees to (x) pay
the Employee a severance payment of nine (9) months' salary at the Employee's
then current Base Rate, to be paid in full, less any applicable taxes and
withholdings, within fifteen (15) days of the Employee's last day of employment
by the Company; and (y) provide continuing medical and other health insurance
coverage during the nine (9) month severance period for Employee and her family
as provided immediately prior to such termination.

     (C)  At the Election of the Company for Reasons Other than for Cause.  The
          ---------------------------------------------------------------      
Company may, immediately and unilaterally, terminate the Employee's employment
hereunder and this Agreement at any time during the term of this Agreement
without cause by giving sixty (60) days' advance written notice to the Employee
of the Company's election to terminate. During such sixty-day period, the
Employee will be available on a full-time basis for the benefit of the Company
to assist the Company in making the transition to a new, successor officer of
the Company. In the event the company exercises its right to terminate the
Employee under this Section 4(C), the Company agrees to pay the Employee a
severance payment of (i) the greater of (x) the remaining number of months in
the term of this Agreement divided by twelve then multiplied by the Employee's
Base Rate immediately prior to such termination or (y) one year of Employee's
salary at the Base Rate immediately prior to such termination, to be paid in
full, plus a bonus payment equal to the average of the Employee's two most
recent annual performance bonus payments, less any applicable taxes and
withholdings, within fifteen (15) days of the Employee's last day of employment
with the Company, and (ii) the Employee's cost of continuing medical and other
health insurance coverage for Employee and her family 
<PAGE>
 
                                      -7-

substantially as provided immediately prior to such termination during such one
year period. The Company's responsibility for such cost shall not exceed twice
the cost it paid for such coverage immediately prior to Employee's termination.

     (D)  Termination at time of Acquisition of the Company.  If the Employee's
          -------------------------------------------------                    
employment with the Company terminates at any time within a period commencing
three months before and ending twelve months after a consolidation, merger,
reorganization, or sale or transfer of all, or substantially all, of the assets
or capital stock of the Company or other business combination in which the
Company is either not the surviving entity or is the surviving entity but the
holders of the voting securities of the Company immediately prior to such
transaction hold at least a majority of the equity interest of the resulting
entity, or the acquisition by any individual, firm, corporation, partnership or
other entity of twenty percent (20%) or more of the voting securities then
outstanding, or a change in the majority of the Board of Directors of the
Company (excluding any persons approved by a vote of at least a majority of the
current Board of Directors) other than the Holding Company Event (a "Change of
Control"), and the Employee is not offered employment that is agreeable to her,
for whatever reason, then the Company or the acquiring entity, as the case may
be, shall be obligated, notwithstanding the remaining term of this Agreement, to
pay the Employee a severance payment equal to at least two times the sum of
Employee's salary at the Base Rate immediately prior to such termination plus
the Average Annual Bonus most recently payable to her, to be paid in full, less
any applicable taxes and withholdings, within fifteen (15) days of the
Employee's last day of employment with the Company, together with the Employee's
cost of continuing medical and health insurance coverage for Employee and her
family substantially as provided immediately prior to such Change of Control as
during the two year severance period. Anything contained in this Section 4(D) to
the contrary notwithstanding, the Employee shall not be entitled to any
severance or other termination benefit (except as otherwise required by law) if
the Employee's employment has either (i) been terminated by the Employee
voluntarily other than for Good Reason or (ii) been terminated by the Company or
any acquiring entity "for cause" pursuant to Section 4(B)(ii), (iii), (iv) or
(v).

     (E)  Benefits if Agreement Terminated Due to Death or Disability.  In the
          -----------------------------------------------------------         
event this Agreement shall terminate pursuant to clause (ii) of the first
sentence of Section 3 the Company shall pay the Employee or her legal
representatives an amount equal to the amount payable under Section 4(C). The
provisions of this Section 4(E) shall survive the termination of this Agreement
by reason of the death or permanent disability of the Employee.

     (F)  Upon Expiration of the Term.  If Employee's employment ends at or
          ---------------------------                                      
after such time as the term of this Agreement shall have expired, then the
Company agrees to pay the Employee a sum equal to one year of Employee's salary
at her Base Rate immediately prior to the termination of her employment plus the
Average Annual Bonus and, in addition, the Employee's cost of continuing medical
and other health insurance coverage for Employee and her family substantially as
provided immediately prior to such termination for a one year period following
the end of Employee's employment. The Company's responsibility for such cost
shall not exceed twice the cost it paid for such coverage immediately prior to
Employee's termination.
<PAGE>
 
                                      -8-

     5.   Noncompetition and Confidentiality.  In connection with her employment
          ----------------------------------                                    
by the Company, the Employee has previously executed the Noncompetition and
Confidentiality Agreement attached hereto as Exhibit C, the terms and
                                             ---------               
conditions of which are incorporated herein by reference. The Noncompetition and
Confidentiality Agreement shall survive the termination of this Agreement and
shall remain in full force and effect for so long as is provided by its own
terms and as is permitted by law.

     6.   Consent and Waiver by Third Parties.  The Employee hereby represents
          -----------------------------------                                 
and warrants that she has obtained all waivers and/or consents from third
parties which are necessary to enable her to enjoy employment with the Company
on the terms and conditions set forth herein and to execute and perform this
Agreement without being in conflict with any other agreement, obligation or
understanding with any such third party. The Employee represents that she is not
bound by any agreement or any other existing or previous business relationship
which conflicts with, or may conflict with, the performance of her obligations
hereunder or prevent the full performance of her duties and obligations
hereunder.

     7.   Governing Law.  This Agreement, the employment relationship
          -------------                                              
contemplated herein and any claim arising from such relationship, whether or not
arising under this Agreement, shall be governed by and construed in accordance
with the internal law of the Commonwealth of Massachusetts and this Agreement
shall be deemed to be performable in Massachusetts.

     8.   Severability.  In case any one or more of the provisions contained in
          ------------                                                         
the Agreement or the other agreements executed in connection with the
transactions contemplated hereby for any reason shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or such
other agreements, but this Agreement or such other agreements, as the case may
be, shall be construed and reformed to the maximum extent permitted by law.

     9.   Waivers and Modifications.  This Agreement may be modified, and the
          -------------------------                                          
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 9. No waiver by either party of any
breach by the other or any provision hereof shall be deemed to be a waiver of
any later or other breach thereof or as a waiver of any other provision of this
Agreement. This Agreement sets forth all of the terms of the understandings
between the parties with reference to the subject matter set forth herein and
may not be waived, changed, discharged or terminated orally or by any course of
dealing between the parties, but only by an instrument in writing signed by the
party against whom any waiver, change, discharge or termination is sought. No
modification or waiver by the Company shall be effective without the consent of
at least a majority of the members of the Board of Directors (excluding the
Employee) then in office at the time of such modification or waiver.

     10.  Assignment.  The Employee acknowledges that the services to be
          ----------                                                    
rendered by her hereunder are unique and personal in nature. Accordingly, the
Employee may not assign any of her rights or delegate any of her duties or
obligations under this Agreement, provided, however, 
<PAGE>
 
                                      -9-

that this Agreement shall inure to the benefit of Employee's heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees and successors. The rights and obligations of the Company under this
Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company. The Company agrees that a successor in
interest by merger, operation of law, consolidation, assignment, purchase or
otherwise of a controlling interest in the business of the Company will be
informed prior to such event of the existence of this Agreement. The Company
will require any successor (whether direct or indirect, by purchase, merger,
operation of law, consolidation, assignment or otherwise of a controlling
interest in the business, stock or other assets of the Company) to assume
expressly and agree to perform this Agreement. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.

     11.  Acknowledgments.  The Employee hereby acknowledges and recognizes
          ---------------                                                  
that the enforcement of any of the provisions in this Agreement and the
Noncompetition and Confidentiality Agreement incorporated herein may potentially
interfere with the Employee's ability to pursue a proper livelihood. The
Employee represents that she is knowledgeable about the business of the Company.
The Employee recognizes and agrees that the enforcement of the Noncompetition
and Confidentiality Agreement is intended to ensure the preservation, protection
and continuity of the business trade secrets and goodwill of the Company. The
Employee agrees that, due to the proprietary nature of the Company's business,
the restrictions set forth in the Noncompetition and Confidentiality Agreement
are reasonable as to time and scope. The foregoing shall not prohibit the
Employee from employment with any company by which the Employee has been
employed in the past so long as her activities with any such company do not
otherwise constitute a breach of the Noncompetition and Confidentiality
Agreement.

     12.  Entire Agreement.  This Agreement, and the Noncompetition and
          ----------------                                             
Confidentiality Agreement, the Stock Plan, the Stock Option Agreement and the
Restricted Stock Agreement referenced herein, constitute the entire
understanding of the parties relating to the subject matter hereof and supersede
and cancel all agreements, written or oral, made prior to the date hereof
between the Employee and the Company relating to employment, salary, bonus, or
other compensation of any description, equity participation, pension, post-
retirement benefits, severance or other remuneration.

     13.  Notices.  All notices hereunder shall be in writing and shall be
          -------                                                         
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by overnight courier, addressed as follows:

     If to the Company, to:   Investors Bank & Trust Company
                    89 South Street
                    Boston, MA 02205-1537
                    Attention: Karen Creegan

                                With a copy to:
                                Mark D. Smith, Esq.
                                Testa, Hurwitz & Thibeault
<PAGE>
 
                                      -10-

                                125 High Street
                                Boston, MA 02110; and

     If to the Employee, at the Employee's address set forth on the signature
page hereto, with a copy to:

                         Robert M. Gault, Esq.
                         Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
                         One Financial Center
                         Boston, MA 02111

All notices hereunder shall be deemed to have been given either (i) if
personally, upon receipt, (ii) if sent by overnight courier on the next business
day following the day such notice is delivered to the courier service, or (iii)
if sent by registered or certified mail, on the 5th business day following the
day such mailing is made.

     14.  Counterparts.  This Agreement may be executed in two counterparts,
          ------------                                                      
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

     15.  Section Headings.  The descriptive section headings herein have been
          ----------------                                                    
inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.

     16.  Survival.  Notwithstanding any other provision hereof, the provisions
          --------                                                             
of Sections 2D, 4, 5, 17, 18, 19 and 20 shall survive any termination of
Employees employment and the other 'provisions of this Agreement.

     17.  Excise Tax.  In the event Employee is subject to any excise tax
          ----------                                                     
("Excise Tax") on her compensation by the Company or any of its affiliates
(including but not limited to IFSC) (including but not limited to excise taxes
imposed under Section 4999 of the Internal Revenue Code), the Company agrees
that it will then "gross-up" Employee's compensation by making an additional
payment to her in an amount which, after reduction for any income or excise
taxes payable as a result of receiving such additional payment, is equal to the
Excise Tax.

     18.  Mitigation.  Employee shall not be required to mitigate the amount of
          ----------                                                           
any payment provided for in this Agreement by seeking other employment or
otherwise, nor, other than as provided in Paragraph 4E hereof, shall the amount
of any payment provided for herein be reduced by any compensation earned by
Employee as the result of employment by another employer or by retirement
benefits or insurance payments after the date of termination or otherwise.

     19.  Legal Expenses.  The Company will pay Employee's reasonable fees for
          --------------                                                      
legal and tax advice and other related expenses associated with the negotiation
and completion of this Agreement, as well as any future amendments hereto and
any disputes arising hereunder, 
<PAGE>
 
                                      -11-

provided, however, in the event of any dispute arising hereunder, if a court of
competent jurisdiction shall render a final judgment in favor of the Company on
the issues in such dispute hereunder, from which there is no further right of
appeal, Employee shall reimburse the Company all amounts paid to Employee under
this Paragraph 19 with respect to such dispute.

     20.  Indemnification.  The Company agrees that the Employee shall be
          ---------------                                                
entitled to indemnification, and advancement of expenses in connection
therewith, as a director, officer and employee of the Company, of IFSC and of
any affiliate of the Company or IFSC to the full extent permitted by applicable
law.

     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written as an instrument under seal.


Investors Bank & Trust Company               EMPLOYEE:                
                                                                      
By: ____________________________             _________________________
                                             Signature                
Title:__________________________                                      
                                                                      
                                             _________________________
Investors Financial Services Corp.           Street Address           
                                                                      
By: ____________________________             _________________________
                                             City    State    Zip Code 


Title: _________________________