EMPLOYEE RETENTION AGREEMENT

Exhibit 10(z)

Maine & Maritimes Corporation

EMPLOYEE RETENTION AGREEMENT

THIS EMPLOYEE RETENTION AGREEMENT dated as of December 15, 2004 (this “Agreement”) is entered into between Maine & Maritimes Corporation, a Maine corporation (the “Company”), and Annette N. Arribas (the “Executive”) (the Company and Executive are sometimes referred to as “Party” or collectively “Parties”).

RECITALS

WHEREAS, the Executive, has been employed by the Company in a management capacity for approximately seven years and is now its Vice President of Corporate Compliance & Investor Relations; and

WHEREAS, the Board of Directors of the Company has determined this Agreement to be in the best interests of the stockholders of the Company, in order to encourage the attention and dedication of the Executive to his assigned duties with the Company without distraction in connection with potentially disruptive circumstances arising from the possibility of a Change in Control (as defined herein) or certain other events specified in this Agreement;

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties, the Company and the Executive agree as follows:

Section 1. Certain Definitions

As used herein, the following terms have the indicated meanings:

(1) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform his duties with the Company after a written notice is delivered to the Executive by the Company, which notice specifically identifies the manner in which the Company believes that the Executive has not substantially performed the Executive’s duties; or (ii) the willful engaging by the Executive in gross misconduct that is injurious to the Company, monetarily or otherwise (including, without limitation, the Executive’s conviction, by a court of competent jurisdiction, of a crime adversely reflecting on the Executive’s honesty, trustworthiness or fitness to carry out the responsibilities of his position with the Company). An act, or failure to act, on the Executive’s part shall be deemed “willful” where such act is done, or not done, by the Executive: (i) in the absence of good faith; or (ii) without a reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company.

(2) For the purpose of this definition (“Change in Control “) only, the term “Company,” first defined above, shall also be defined to include Maine Public Service Company in addition to its parent, Maine & Maritimes Corporation. A “Change in Control” shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied:

(a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any corporation owned directly or

indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing fifty percent or more of the combined voting power of the Company’s then-outstanding voting securities;

(b) a change in the composition of the Board of Directors of the Company, as a result of which fewer than a majority of the directors are persons who either (A) are directors of the Company as of the date hereof or (B) were elected after nomination by a majority of the directors of the Company on the date hereof and directors so elected previously;

(c) any merger or consolidation of the Company, approved by the stockholders of the Company, with any other corporation; other than:

(A) any such merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to the merger or consolidation, continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than fifty percent of the combined voting power of the voting securities (entitled to vote generally for the election of directors) of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, or subsequently at any time as contemplated by or as a result of, such merger or consolidation; or

(B) any such merger or consolidation where such merger or consolidation is effected to implement a recapitalization or reincorporation of the Company (or similar transaction) in which no “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) acquires fifty percent or more of the combined voting power of the Company’s then-outstanding voting securities;

(d) any merger or consolidation of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s stock, would be converted into cash, securities or other property; other than a merger or consolidation of the Company in which the stockholders of the Company immediately prior to the merger or consolidation have substantially the same proportionate ownership and voting control of the surviving corporation or parent entity immediately after the merger or consolidation;

(e) except as described below, the Company ceases to be a reporting company pursuant to Section 13 (a) of the Securities Exchange Act of 1934 as amended, or any similar successor provision;

(f) the number of the Company’s Outside Directors, as defined below, is decreased by more than fifty percent in any twenty-five month period or the number of the Company’s directors increased in such a manner that the Outside Directors constitute less than a majority of the Board;

(g) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease, exchange, liquidation, disposition or other transfer (in one transaction or a series of transactions) by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect).

Exhibit 10(z) - Page 2

(h) further, a “Change in Control” shall not be deemed to occur if the conditions set forth in any one of the following sub-paragraphs shall have been satisfied:

(A) a merger, consolidation or reorganization of the Company if, upon consummation of such transaction all of the outstanding voting stock of the Company is owned, directly or indirectly, by a holding company, and the holders of the Company’s common stock immediately prior to the transaction have substantially the same proportionate ownership and voting control of the holding company.

(3) “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence of any one of the following acts unless such act is corrected prior to the Termination Date specified in the Termination Notice given in respect thereof or, in the case of paragraph (d) below, such act is not objected to in writing by the Executive within four months after notification by the Company to the Executive of the Company’s intention to take the action contemplated by such paragraph (d):

(a) the assignment of duties to the Executive which:

(b) the Executive’s removal from, or any failure to re-elect him to, any position he held immediately prior to the Change in Control;

(c) a reduction of the Executive’s annual base salary in effect on the date of the Change in Control or as the same may be increased from time to time thereafter;

(d) the Company’s transferring or assigning the Executive to a place of employment more than one hundred miles from Presque Isle, Maine, except where: (1) such transfer or assignment is to a subsidiary or affiliate entity location, consistent with the Executive’s duties; and (2) in connection with required business travel to an extent substantially consistent with the Executive’s business travel obl