8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 15, 2004

INNOVATIVE MICRO TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation) 01-06635
(Commission File Number) 95-1950506
(IRS Employer Identification No.)

75 Robin Hill Road
Goleta, California 93117
(Address of principal executive offices)   (Zip Code)

Registrant's telephone number, including area code:  (805) 681-2800

_____________________________________________________
(Former name or former address, if changed since last report)

Item 2.  Acquisition or Disposition of Assets

On March 15, 2004, Innovative Micro Technology, Inc. (the "Company") entered into a $1,500,000 Secured Promissory Note ("Note") in favor of L-3 Communications Corporation ("L-3"). In connection with the Note, the Company also entered into a Security Agreement and Supplemental Agreement with L-3. The Note is secured by substantially all of the personal property of the Company pursuant to the terms of the Security Agreement. The Supplemental Agreement, in consideration for investments and loans made by L-3 to the Company, provides L-3 with certain rights with respect to board participation, quarterly management reviews, cost reduction measures and limitations on transactions with affiliates.

Item 7.  Financial Statements and Exhibits

The following is a list of exhibits filed as a part of this report.

Exhibit Number	Description
10.14	Promissory Note dated March 15, 2004 by Innovative Micro Technology in favor of L-3 Communications Corporation.
10.15	Security Agreement dated March 15, 2004 by and between the Company and L-3 Communications Corporation.
10.16	Supplemental Agreement dated March 15, 2004 by and between the Company and L-3 Communications Corporation.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  March 30, 2004	INNOVATIVER MICRO TECHNOLOGY, INC.
	By:   /s/ Peter T. Altavilla                        Peter T. Altavilla         Secretary and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
10.14	Promissory Note dated March 15, 2004 by Innovative Micro Technology in favor of L-3 Communications Corporation.
10.15	Security Agreement dated March 15, 2004 by and between the Company and L-3 Communications Corporation.
10.16	Supplemental Agreement dated March 15, 2004 by and between the Company and L-3 Communications Corporation.

EX-10

Exhibit 10.14

SECURED PROMISSORY NOTE

$1,500,000                                                                                                   March 15, 2004

FOR VALUE RECEIVED, the undersigned, INNOVATIVE MICRO TECHNOLOGY, INC., a Delaware corporation ("Borrower"), hereby PROMISES TO PAY to the order of L-3 COMMUNICATIONS CORPORATION, a Delaware corporation ("Lender") or its designee, at its offices at 600 Third Avenue, New York, New York 10016, or at such other place as Lender may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of $1,500,000.

 Interest on the principal amount of the indebtedness evidenced hereby shall accrue on a daily basis from the date hereof to and including the date of repayment at a rate per annum equal to the Base Rate (as defined below) plus 2%, calculated on the basis of a 365-day year or a 366-day year, as applicable. Accrued and unpaid interest shall be compounded on a quarterly basis on each Interest Compounding Date. Notwithstanding any provision to the contrary contained herein, any amounts (whether principal or interest) that are not paid to Lender as and when they become due hereunder (whether by acceleration or otherwise) shall thereafter bear interest until and including the date of payment at a rate per annum equal to the Base Rate plus 4%, calculated on the basis of a 365-day year or a 366-day year, as applicable.

The principal amount of the indebtedness evidenced hereby and all interest accrued and unpaid thereon shall be payable in whole (or at the election of the Lender from time to time in part) upon two (2) business days prior written demand from Lender to Borrower. Lender shall have the right, in its sole discretion, to demand repayment either in cash or in shares of Borrower's common stock (with each such share valued at $5.35 per share). Any such shares so issued shall constitute "Registrable Securities" for purposes of the Stock Purchase Agreement dated August 1, 2002 between Borrower and Lender (except that such shares shall cease to be "Registrable Securities" at such time as provided for under the proviso to the definition of "Registrable Securities" contained in such agreement). Borrower hereby covenants and agrees that at all times until repayment in full of all principal and unpaid interest accrued hereunder, it shall (a) reserve and keep available for issuance such number of its authorized but unissued shares of common stock as will from time to time be sufficient to satisfy repayment in full of all principal and unpaid interest accrued hereunder and (b) take all action necessary to increase the authorized number of shares of its common stock if at any time there shall be insufficient authorized but unissued shares of its common stock to permit such reservation. Borrower further covenants and agrees that it shall take all action necessary to cause all shares issued to Lender in response to any demand hereunder to be validly issued to Lender, and to be fully-paid, non-assessable and free and clear of any liens at the time of issuance.

Borrower may voluntarily prepay this note by paying the principal amount of the indebtedness evidenced hereby and all interest accrued and unpaid thereon in cash upon one (1) business day prior written notice to Lender; provided, that Borrower may not prepay in cash any amount payable hereunder as to which Lender has previously demanded repayment in shares of Borrower's common stock.

The obligations represented by this Note are secured by a security interest in certain collateral of the Borrower, which security interest was granted by the Borrower to the Lender pursuant to the terms of a security agreement dated on or prior to the date hereof between the Borrower and the Lender (the "Security Agreement").

For purposes of this Note: (i) the term "Interest Compounding Date" means the last business day of each March, June, September and December; and (ii) the term "Base Rate" means, (a) for any day between the date hereof and the first Interest Compounding Date thereafter, the prime rate as published in the Wall Street Journal on the date hereof and (b) for any subsequent day, the prime rate as published in the Wall Street Journal as of the most recent prior Interest Payment Date.

Upon and after the occurrence of an Event of Default (as defined in the Security Agreement) and at the sole discretion of Lender, the principal amount of the indebtedness evidenced hereby and all interest accrued and unpaid thereon may, without demand, notice or legal process of any kind, be declared, and, upon such declaration, immediately shall become, due and payable.

If a payment hereunder becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of New York, the due date thereof shall be extended to the next succeeding business day, and the interest shall be payable thereon during such extension at the applicable rate specified herein. In no event whatsoever shall interest charged hereunder, however such interest may be characterized or computed, exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has received interest hereunder in excess of the highest rate applicable hereto, such excess shall be applied to the payment of the principal amount of this Note or refunded to Borrower.

Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof. This Note shall be binding upon the successors and assigns of Borrower and shall inure to the benefit of the successors and assigns of Lender; provided, that Borrower may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of Lender.

Borrower shall not offset against any principal or interest payable hereunder any claims or defenses, by way of abatement, set off, defense, counterclaim, recoupment or otherwise, which Borrower may have except the defense of payment.

Borrower, for itself and its legal representatives, successors and assigns, expressly waives to the fullest extent permitted by law presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purposes of accelerating maturity, diligence in collection, and the benefit of any exemption or any insolvency laws.

All notices contemplated hereunder shall be given in accordance with the provisions for the giving of notices contained in the Security Agreement. None of the terms and provisions of this Note may be waived, altered, modified or amended except by an instrument in writing executed by the Borrower and the Lender. A waiver of any breach or default hereof will not constitute a waiver of any other or subsequent breach or default, whether or not similar in nature.

This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and performed entirely within such State and without regard to conflict of law principles.

INNOVATIVE MICRO TECHNOLOGY, INC.

By:  /s/ John S. Foster    

Name:  John S. Foster

Title:  Chief Executive Officer

EX-10

Exhibit 10.15

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Security Agreement") is entered into as of March 15, 2004, by and between Innovative Micro Technology, Inc., a Delaware corporation ("Company"), and L-3 Communications Corporation, a Delaware corporation ("Secured Party"). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them under the Uniform Commercial Code as from time to time in effect in the State of New York (the "New York UCC").

RECITALS

A.  Company has borrowed funds from the Secured Party pursuant to one or more Notes (as defined below), and may borrow additional funds through one or more subsequent Notes.

B.  As security for its payment obligations under the Notes, Company has agreed to grant Secured Party a security interest in its assets on the terms set forth in this Security Agreement.

NOW, THEREFORE, to that end and in consideration of the premises, covenants and agreements set forth below, the mutual benefits to be derived from this Security Agreement, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.  Definitions. As used in this Agreement, the following terms have the following meanings:

"Liens": means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.

"Permitted Liens": means (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings; (b) carriers', warehousemen's mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, zoning restrictions and other similar encumbrances incurred in the ordinary course of business which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of Company's business; (f) Liens in favor of a banking institution arising by operation of law encumbering deposits held by such banking institution incurred in the ordinary course of business; (g) with respect to Collateral that is leased, licensed or held pursuant to a consignment arrangement from a third party, Liens on such Collateral provided for under the terms of the applicable lease, license or arrangement, provided that such lease, license or arrangement is entered into in the ordinary course of business; (h) leases of, or licenses granted with respect to, the Collateral by Company to third parties in the ordinary course of business; and (i) mortgages on Company's real property located at 75 Robin Hill Road, Santa Barbara, California 93117, including any Fixtures in respect thereof.

2.  Security Interest. To secure the Obligations (as defined below), Company hereby transfers, conveys, assigns, and grants to Secured Party a security interest in all of the following property now owned or at any time hereafter acquired by Company or in which Company now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"):

(a)  all Accounts;

(b)  all Chattel Paper;

(c)  all Deposit Accounts

(d)  all Documents (other than title documents with respect to Vehicles);

(e)  all Equipment;

(f)  all General Intangibles;

(g)  all Instruments;

(h)  all Inventory;

(i)  all Investment Property (other than equity interests in any subsidiary of Company organized under the laws of any jurisdiction outside the United States of America);

(j)  all Letter-of-Credit Rights;

(k)  all books and records pertaining to the Collateral; and

(l)  to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing;

provided, however, that notwithstanding any of the other provisions set forth in this Section 2, this Agreement shall not constitute a grant of a security interest in any property to the extent that such grant of a security interest is prohibited by any applicable legal requirement of a governmental authority, requires a consent not obtained of any governmental authority pursuant to such legal requirement or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property, except to the extent that such legal requirement or the term in such contract, license, agreement, instrument or other document providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law.

3.  Secured Obligations. The security interest granted to the Secured Party under Section 2 above is given as security for all indebtedness and obligations owed by Company to Secured Party, whether now existing or hereafter incurred and whether at the stated maturity or by demand, acceleration or otherwise (collectively, the "Obligations"), under one or more promissory notes issued from time to time by Company to the Secured Party on or after the date of this Agreement, together with all extensions, modifications, or renewals thereto (collectively, the "Notes"), and under this Agreement.

4.  Representations and Warranties. Company hereby represents and warrants to the Secured Party as follows:

(a)  Company is a Delaware corporation having its sole place of business at 75 Robin Hill Road, Santa Barbara, California 93117, and Company's Inventory and Equipment (other than mobile goods) are kept at such location. Company has furnished to the Secured Party a certified charter or other comparable organization document and long-form good standing certificate as of a date which is recent to the date hereof.

(b)  The security interests granted pursuant to this Agreement constitute valid security interests in all of the Collateral in favor of the Secured Party as collateral security for the Obligations. No consent of any third party is required in connection with the execution, delivery and performance of this Agreement by Company.

(c)  Except for the security interests granted to the Secured Party pursuant to this Agreement, Company owns each item of the Collateral free and clear of any Liens other than Permitted Liens.

5.  Covenants. Company covenants and agrees with the Secured Party that from and after the date of this Agreement until the Obligations shall have been paid in full, it shall:

(a)  carry on the business of the Company only in the ordinary course consistent with past practices;

(b)  keep in effect all licenses, permits and franchises required by law or contract relating to Company's business, property or the Collateral;

(c)  maintain reasonable levels of insurance on the Collateral against loss by fire, explosion, theft and similar casualties;

(d)  keep the Collateral in good repair and otherwise maintain and preserve the value of the Collateral in the ordinary course of business;

(e)  at all times warrant and defend Company's right, title and interest in and to the Collateral and the security interests granted to the Secured Party hereunder against the claims and demands of any other person (subject to the right of Company to dispose of Collateral in the ordinary course of business);

(f)  maintain and keep the Collateral free from all Liens other than Permitted Liens;

(g)  pay when due all taxes, license fees and other charges upon the Collateral or upon Company's business and properties and the income therefrom; and

(h)  at any time and from time to time, upon the written request of the Secured Party and at the sole expense of Company, promptly and duly execute and deliver, and have recorded, such instruments and documents and take such further actions as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement, including without limitation filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and executing, delivering or filing any other instruments and documents necessary to perfect the security interests provided for herein;

(i)  promptly advise the Secured Party of (i) the incurrence of any Lien on any of the Collateral (other than Permitted Liens), (ii) any breach of this Agreement or the Supplemental Agreement entered into between the Company and the Secured Party on the date hereof (the "Supplemental Agreement") or (iii) the occurrence of any other event which would reasonably be expect to have a material adverse effect on the aggregate value of the Collateral, the security interests created hereby or the ability of the Secured Party to exercise any of its remedies hereunder;

(j)  not dispose of, or transfer any interest in, any of the Collateral other than in the ordinary course of business;

(k)  not misuse, conceal or in any way use or dispose of the Collateral unlawfully or contrary to the provisions of this Security Agreement or of any insurance coverage; and

(l)  not, except upon 60 days' prior written notice to the Secured Party, change its name, jurisdiction of organization or any location at which it conducts its business.

6.  Default. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: (1) Company fails to pay any portion of the Obligations when due (including any failure make any such payment in shares of stock as may be required under the terms of any Note); (2) Company fails to perform any undertaking or breaches any warranty or covenant in this Security Agreement or the Supplemental Agreement; (3) Company becomes insolvent or unable to pay debts as they mature; (4) Company makes an assignment for the benefit of creditors; (5) any proceeding is instituted by or against Company alleging that it is insolvent or unable to pay its debts as they mature or seeking the winding-up, liquidation or dissolution of the affairs of Company; (6) the winding-up, liquidation or dissolution of the affairs of Company; or (7) the taking of any action by Company in furtherance of any of the foregoing.

7.  Remedies; Deficiency.

(a)  If an Event of Default shall occur and be continuing, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Company or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Company, which right or equity is hereby waived and released. Company further agrees, at the Secured Party's request, to assemble the Collateral (including without limitation documents or instruments evidencing the Collateral) and make it available to the Secured Party at places which the Secured Party shall reasonably select, whether at Company's premises or elsewhere. The Secured Party shall apply the net proceeds of any action taken by it pursuant to this Section 7, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Party hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Secured Party may elect, and only after such application and after the payment by the Secured Party of any other amount required by any provision of law, including, without limitation, Section 9-615(a)(3) of the New York UCC, need the Secured Party account for the surplus, if any, to Company. To the extent permitted by applicable law, Company waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by it of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

(b)  The Secured Party in its own name or in the name of Company may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables and parties to the contracts included within the Collateral (the "Contracts") to verify with them to the Secured Party's satisfaction the existence, amount and terms of any Receivables or Contracts. Upon the request of the Secured Party at any time after the occurrence and during the continuance of an Event of Default, Company shall notify obligors on the Receivables and parties to the Contracts that the Receivables and the Contracts have been assigned to the Secured Party and that payments in respect thereof shall be made directly to the Secured Party. Anything herein to the contrary notwithstanding, Company shall remain liable under each of the Receivables and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in ac cordance with the terms of any agreement giving rise thereto. The Secured Party shall not have any obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by the Secured Party of any payment relating thereto, nor shall the Secured Party be obligated in any manner to perform any of the obligations of Company under or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(c)  If an Event of Default shall occur and be continuing, all Proceeds received by Company consisting of cash, checks and other near-cash items shall be held by Company in trust for the Secured Party, segregated from other funds of Company, and shall, forthwith upon receipt by such Company, be turned over to the Secured Party in the exact form received by Company (duly indorsed by Company to the Secured Party, if required).

(d)  The Secured Party's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account. Neither the Secured Party nor any of its officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Company or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Company for any act or failure to act hereunder, except for gross negligence or willful misconduct.

(e)  Company shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations, including the fees and disbursements of any attorneys employed by the Secured Party to collect such deficiency.

8.  Execution of Financing Statements. Pursuant to any applicable law, Company authorizes the Secured Party to file or record from time to time financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of Company in such form and in such offices as the Secured Party determines appropriate to perfect the security interests of the Secured Party under this Agreement. Company shall be responsible for the payment of all costs of filing such financing statements, documents or instruments. Company hereby ratifies and authorizes the filing by the Secured Party of any financing statements, documents or instruments with respect to the Collateral made prior to the date hereof.

9.  Releases. At such time as the Obligations shall have been paid in full, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Secured Party and Company hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to Company. At the request and sole expense of Company following any such termination, the Secured Party shall deliver to Company any Collateral held by the Secured Party hereunder, and execute and deliver to Company such documents as Company shall reasonably request to evidence such termination.

10.  Notices. All notices, requests, demands, approvals, consents, waivers and other communications required or permitted to be given under this Agreement (each, a "Notice") shall be in writing and shall be deemed to have been duly given when delivered in person or by facsimile transmission (with a confirmed receipt thereof), on the next business day when sent by overnight courier service, and on the date of receipt when sent by postage prepaid mail with a return receipt requested, at the following locations (or at such other location for a party as shall be specified to the other party by like notice).

(a)  if to Company, to:

Innovative Micro Technology, Inc.
75 Robin Hill Road
Santa Barbara, California 93117
Facsimile: (805) 967-2677
Attention: Pete Altavilla, Chief Financial Officer

(b)  if to Secured Party, to:

L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Facsimile: (212) 805-5494
Attention: Christopher C. Cambria, Esq., General Counsel

11.  Amendment, Waivers, etc.; Cumulative Remedies. No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. Neither the waiver by any of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure by any of the parties, on one or more occasions, to enforce any of the provisions of the Agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

12.  Expenses. Company agrees to pay or reimburse the Secured Party for all its costs and expenses incurred in enforcing or preserving any rights under this Agreement, including without limitation fees and disbursements of counsel. Company agrees to pay, and to indemnify and hold the Secured Party harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. The agreements in this Section 12 shall survive repayment of the Obligations.

13.  Successors and Assigns. This Agreement shall be binding upon the successors and assigns of Company and shall inure to the benefit of the successors and assigns of the Secured Party; provided, that Company may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Secured Party.

14.  Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

15.  Interpretation. The parties hereto acknowledge and agree that: (a) each party hereto and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to their revision and (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement. Unless otherwise expressly provided herein, the words "include," "includes" and "including" do not limit the preceding words or terms and shall be deemed to be followed by the words "without limitation." Unless otherwise expressly provided herein, the words "in the ordinary course of business" when used herein shall be deemed to be followed by the words "consistent with past practice." All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms, have correlative meanings when used herein in their plural or singular forms, respectively. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

16.  Integration. This Agreement and the Notes represent the entire agreement of Company and the Secured Party with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Secured Party relative to subject matter hereof and thereof not expressly set forth or referred to herein or therein.

17.  Governing Law. This agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York applicable to contracts made and performed entirely within such State and without regard to conflict of law principles.

18.  Submission To Jurisdiction; Waivers. Company hereby irrevocably and unconditionally:

(a)  submits for itself and its property in any legal action or proceeding relating to this Agreement or the Notes, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b)  consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)  agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Company at its address referred to in Section 10 or at such other address of which the Secured Party shall have been notified pursuant thereto;

(d)  agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction;

(e)  waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages; and

(f)  waives trial by jury in any legal action or proceeding relating to this Agreement or the Notes.

19.  Acknowledgements. Company hereby acknowledges that: (a) the Secured Party does not have any fiduciary relationship with or duty to Company arising out of or in connection with this Agreement or any of the Notes, and the relationship between Company, on the one hand, and the Secured Party, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (b) no joint venture is created hereby or by the Notes or otherwise exists by virtue of the transactions contemplated hereby or thereby.

20.  Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above.

COMPANY:	INNOVATIVE MICRO TECHNOLOGY, INC., a Delaware corporation
	By:  /s/ John S. Foster     Name:  John S. Foster Title:  Chief Executive Officer
SECURED PARTY:	L-3 COMMUNICATIONS CORPORATION, a Delaware corporation
	By:  /s/ Christopher C. Cambria     Name:  Christopher C. Cambria Title:  Senior Vice President, General Counsel and Secretary

EX-10

Exhibit 10.16

SUPPLEMENTAL AGREEMENT

THIS SUPPLEMENTAL AGREEMENT is entered into as of March 15, 2004, by and between Innovative Micro Technology, Inc., a Delaware corporation ("Company"), and L-3 Communications Corporation, a Delaware corporation ("L-3").

WHEREAS, L-3 has made certain investments and loans in the Company on or prior to the date hereof; and

WHEREAS, the Company has agreed to enter into this Agreement for the benefit of L-3 in consideration for such investments and loans.

NOW, THEREFORE, in consideration of the premises, covenants and agreements set forth below and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.  Board Participation. The Company shall cause to be elected and/or appointed to the Company's Board of Directors two members designated from time to time by L-3 (who shall initially be Jill Wittels and Mike Andrews). The Company's Board of Directors shall consist of a maximum of eight (8) members.

2.  Quarterly Management Reviews; Monthly Reports.

(a)  The Company's senior management shall make presentations to L-3's senior management at L-3's principal executive offices from time to time on a quarterly basis detailing the Company's financial condition, results of operations, cash flow, operational performance, budget forecasts, projections, strategic opportunities and similar matters as requested by L-3.

(b)  The Company shall promptly provide L-3 with copies of all monthly internal reports of the Company circulated from time to time to the Company's senior management.

3.  Cost Reduction Measures. Until the Company has fully repaid all amounts owed to L-3 (including without limitation all principal or interest) in respect of any indebtedness for borrowed money, including without limitation any amounts payable to L-3 in connection with any security agreement related thereto, the Company shall promptly implement such cost reduction measures in respect of its business operations (including reductions in workforce) as L-3 shall from time to time request.

4.  Limitation on Transactions With Affiliates.

(a)  The Company shall not enter into or effect any transaction with any Affiliate (as defined below) without the prior written consent of L-3; provided, that the foregoing shall not prohibit the Company from (i) making salary payments at existing salary levels, maintaining existing employee benefit plans and providing reimbursements of employee expenses, in each case for the benefit of Company officers to the extent within the ordinary course of business of the Company consistent with past practices; or (ii) performing its obligations under any contract with an Affiliate entered into prior to the date of this Agreement.

(b)  For purposes of this Agreement, the term "Affiliate" means a person (including any entity) that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company. The term "control" (including the terms "controlled by" and "under common control with") as used in the definition of the term "Affiliate" means, the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. For the avoidance of doubt, any director, officer or shareholder of the Company shall be deemed to constitute an Affiliate for purposes of this Agreement.

5.  Term; Termination. The term of this Agreement shall be from the date of execution until the later of: (a) the date on which L-3 ceases to own the lesser of (i) 250,000 shares of Common Stock (as defined in the Stock Purchase Agreement between L-3 and the Company dated August 1, 2002) or (ii) a 3% equity interest in the Company, or (b) the date on which Company has fully repaid all amounts owed to L-3 (including without limitation all principal or interest) in respect of to any indebtedness for borrowed money, including without limitation any amounts payable to L-3 in connection with any security agreement related thereto. This Agreement shall not be terminable prior to the expiration of the term. Upon the expiration of the term, this Agreement shall automatically terminate without any further action on the part of L-3 or the Company.

6.  Authority. The Company hereby represents and warrants to L-3 that (a) this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and (b) no consent of any third party is required in connection with the execution, delivery and performance of this Agreement by Company.

7.  Notices. All notices, requests, demands, approvals, consents, waivers and other communications required or permitted to be given under this Agreement (each, a "Notice") shall be in writing and shall be deemed to have been duly given when delivered in person or by facsimile transmission (with a confirmed receipt thereof), on the next business day when sent by overnight courier service, and on the date of receipt when sent by postage prepaid mail with a return receipt requested, at the following locations (or at such other location for a party as shall be specified to the other party by like notice).

(a)  if to Company, to:

Innovative Micro Technology, Inc.
75 Robin Hill Road
Santa Barbara, California 93117
Facsimile: (805) 967-2677
Attention: Pete Altavilla, Chief Financial Officer

(b)  if to L-3, to:

L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Facsimile: (212) 805-5494
Attention: Christopher C. Cambria, Esq., General Counsel

8.  Amendment, Waivers, etc.; Cumulative Remedies. No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. Neither the waiver by any of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure by any of the parties, on one or more occasions, to enforce any of the provisions of the Agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

9.  Successors and Assigns. This Agreement shall be binding upon the successors and assigns of the Company and shall inure to the benefit of the successors and assigns of L-3; provided, that Company may not assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of L-3.

10.  Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

11.  Interpretation. The parties hereto acknowledge and agree that: (a) each party hereto and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to their revision and (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement. Unless otherwise expressly provided herein, the words "include," "includes" and "including" do not limit the preceding words or terms and shall be deemed to be followed by the words "without limitation." Unless otherwise expressly provided herein, the words "in the ordinary course of business" when used herein shall be deemed to be followed by the words "consistent with past practice." All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms, have correlative meanings when used herein in their plural or singular forms, respectively. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

12.  Integration. This Agreement represents the entire agreement of the Company and L-3 with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by L-3 relative to subject matter hereof and thereof not expressly set forth or referred to herein or therein.

13.  Governing Law. This agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York applicable to contracts made and performed entirely within such State and without regard to conflict of law principles.

14.  Submission To Jurisdiction; Waivers. The Company hereby irrevocably and unconditionally:

(a)  submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

(b)  consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)  agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address referred to in Section 6 or at such other address of which L-3 shall have been notified pursuant thereto;

(d)  agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e)  waives trial by jury in any legal action or proceeding relating to this Agreement.

15.  Acknowledgements. The Company hereby acknowledges that: (a) L-3 does not have any fiduciary relationship with or duty to Company arising out of or in connection with this Agreement; and (b) no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby.

16.  Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

INNOVATIVE MICRO TECHNOLOGY, INC.,
a Delaware corporation

By:  /s/ John S. Foster    
Name:  John S. Foster
Title:  Chief Executive Officer

L-3 COMMUNICATIONS CORPORATION,
a Delaware corporation

By:  /s/ Christopher C. Cambria    
Name:  Christopher C. Cambria
Title:  Senior Vice President, General Counsel and Secretary