ITI TECHNOLOGIES INC, 10-K405, 2000-03-29

ITI TECHNOLOGIES INC
10-K405, 2000-03-29
COMMUNICATIONS EQUIPMENT, NEC

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

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FORM 10-K

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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________ TO ________.

COMMISSION FILE NUMBER 0-24900

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ITI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 06-1340453
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2266 NORTH SECOND STREET 55109
NORTH ST. PAUL, MINNESOTA (Zip Code)
(Address of principal executive offices)

(651) 777-2690
(Registrant's telephone number, including area code)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock,
$.01 par value
(Title of class)

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Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by Reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of Common Stock held by non-affiliates of
Registrant, based on the closing sale price of $28.25 per share as reported on
The Nasdaq National Market on March 20, 2000: $194,136,232.

Number of shares of Common Stock outstanding as of March 20, 2000:
8,536,642.

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ITI TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999

INDEX

Page
----
PART I

Item 1. Business........................................................ 3

Item 2. Properties...................................................... 14

Item 3. Legal Proceedings............................................... 15

Item 4. Submission of Matters to a Vote of Security Holders............. 15

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 16

Item 6. Selected Consolidated Financial Data............................ 17

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 19

Item 8. Financial Statements and Supplementary Data..................... 24

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 24

PART III

Item 10. Directors and Executive Officers of the Registrant.............. 25

Item 11. Executive Compensation.......................................... 27

Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 33

Item 13. Certain Relationships and Related Transactions.................. 35

PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K........................................................ 36

Index to Consolidated Financial Statements.................................. F-1

Report of Independent Accountants on Financial Statement Schedule........... S-1

Financial Statement Schedule................................................ S-2

Signatures ................................................................ S-3

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PART I

ITEM 1. BUSINESS

When used in this document, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business, not only in this report, but also in the Company's
reports on Forms 10-Q and 8-K filed with the Commission.

GENERAL

ITI Technologies, Inc. and its wholly owned subsidiaries (collectively,
the "Company" or "ITI") design, manufacture and market electronic intrusion and
fire protection systems as well as electronic access control systems. Intrusion
and fire protection systems account for approximately 98% of ITI's sales. ITI
currently competes in the intrusion alarm market, the electronic access control
market and the commercial fire detection market.

ITI believes that several factors contribute to a favorable outlook for
growth in the electronic security system market. These include increasing use of
wireless security systems, increasing growth in international demand for
intrusion alarm systems, increasing concern about crime, low penetration of
security systems in United States households, improved technology and product
features, lower-cost systems and the availability of insurance discounts to
homeowners who purchase security systems.

PROPOSED MERGER WITH SLC TECHNOLOGIES, INC.

On September 28, 1999, ITI entered into a definitive agreement to merge
SLC Technologies, Inc. into ITI. SLC designs, develops, manufactures and
distributes components and software for intrusion and fire protection systems,
access control systems, video surveillance systems and integrated systems. The
merger is structured as a stock-for-stock merger under which ITI will issue
approximately 15.2 million shares of its common stock to Berwind Group Partners,
the sole stockholder of SLC. ITI stockholders may retain their shares of ITI
common stock or they may elect to receive $36.50 in cash for some or all of
their shares, provided that no more than 50% of the total number of shares of
ITI common stock outstanding immediately prior to the merger may be exchanged
for cash. Immediately after the merger, Berwind Group Partners and SLC
management will together own approximately 63.5% of the shares of common stock
of the combined company, taking into account options to purchase common stock of
the combined company and assuming that ITI stockholders do not exercise the cash
election option. Assuming full exercise of the cash election option, Berwind
Group Partners and SLC management will own approximately 78% of the common stock
of the combined company. In either case, Berwind Group Partners and SLC
management will control all decisions regarding ITI that require stockholder
approval following the merger, and the current ITI stockholders will no longer
have a controlling influence over ITI's future direction.

A special stockholders meeting to consider and vote upon a proposal to
approve the merger is scheduled for May 2, 2000. A proxy statement will be
mailed to all stockholders of record as of March 27, 2000, which is the record
date for the special meeting. Approval of the merger will require the
affirmative vote of a majority of the shares of ITI common stock outstanding on
the record date. Subject to stockholder approval, we expect the merger to close
on or about May 3, 2000.

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In addition to the proxy statement, ITI stockholders will be mailed
election forms relating to the cash election set forth in the Agreement and Plan
of Merger and Reorganization. Election forms will be due no later than 5:00 p.m.
central time on May 1, 2000. Detailed instructions will accompany the election
forms.

HISTORY OF ITI

ITI's wholly owned subsidiary, Interactive Technologies, Inc, was
incorporated in January 1980 under the laws of the State of Minnesota. In
January 1985, Interactive Technologies incorporated a foreign international
sales corporation, ITI International, Inc., as a wholly owned subsidiary under
the laws of the United States Virgin Islands.

ITI Technologies, Inc. was incorporated in February 1992 under the laws
of the State of Delaware for the purpose of acquiring Interactive Technologies.
On May 11, 1992, ITI acquired Interactive Technologies from a United States
holding company controlled by ADIA S.A. of Switzerland and certain members of
ITI's management.

In November 1994, ITI completed a public offering of 1,900,000 newly
issued shares of common stock at $16.00 per share. Prior to the initial public
offering, there was no public market for ITI common stock. In May 1995, in a
subsequent offering, selling stockholders sold 3,225,000 shares and ITI sold
225,000 shares at $24.00 per share. ITI used the net proceeds from these
offerings to retire debt that had been incurred at the time of the acquisition
of Interactive Technologies.

In April 1996, Interactive Technologies incorporated ITI Finance
Corporation as a wholly owned subsidiary under the laws of the State of
Minnesota for the purpose of providing financing to ITI's independent dealer
base.

On April 30, 1997, ITI purchased all of the outstanding stock of
CADDX-CADDI Controls, Inc. for $19,000,000 in cash. In conjunction with the
acquisition of CADDX, ITI also purchased from the majority shareholder of CADDX
the manufacturing facility leased by CADDX for $530,000. Immediately following
the CADDX acquisition, the corporate name was changed to CADDX Controls, Inc.
CADDX, located in Gladewater, Texas, designs, manufactures and markets hardwire
electronic security systems in the United States and certain international
locations.

On May 22, 1997, ITI completed the cash purchase of the Regency product
line and dealer program from the Silent Knight Division of Willknight, Inc.,
located in Minneapolis, Minnesota, for $1,800,000. If sales of Regency products
over the 36-month period ending May 2000 exceed certain levels, a contingent
payment of up to $800,000 will be made. This product line allows ITI to offer an
established product that integrates intrusion protection, fire protection and
access control.

INDUSTRY OVERVIEW

The security industry involves the protection of people and property.
ITI participates in the following segments of the security industry:

* Intrusion and fire protection systems.

* Electronic access control products.

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INTRUSION AND FIRE PROTECTION SYSTEMS

Intrusion and fire protection systems protect residence or commercial
property against fires and intruders by sensing smoke or fire, or intrusions
through doorways, windows, or open areas. Most systems will sound an audible
alarm to warn of fires or intruders. Monitored systems send a signal to a remote
monitoring station, where dispatchers may contact the appropriate authorities. A
typical intrusion and fire protection system consists of the following
components:

* CONTROL PANEL. The control panel receives signals from the
sensors and user interface, regulates all intrusion and home
automation functions and, in the case of a monitored system,
reports emergency conditions and service information to a
monitoring facility.

* USER INTERFACE. The user interface, such as an electronic
keypad, allows the user to arm, disarm and give other commands
to the system, including panic buttons to alert the central
monitoring facility for police, fire and medical emergencies.
Additional user interfaces include wireless key fob controls
to arm and disarm systems and modules that allow users to
control the system from any telephone inside or outside the
home.

* SENSORS. Sensors are devices that are installed on windows,
doorways and other places to detect intrusion, smoke, fire and
other environmental conditions and report them to the control
panel.

* SOUNDERS. Sounders are activated in response to a particular
alarm condition to frighten away an intruder or alert the user
to the alarm condition. Many control panels also utilize
digitized voice to communicate with users.

There are two means of communication within any intrusion or fire
protection system, hardwire and wireless. In a hardwire system, the control
panel, sensors and detectors communicate through low-voltage wires. In a
wireless system, the control panel and sensors utilize radio frequency signals
to communicate.

Equipment costs for hardwire systems are typically lower than those for
wireless systems. Hardwire systems are used most widely in new construction
since the installation costs are lower prior to the completion of construction.
Wireless systems, which are less expensive to install, are typically used for
existing homes and businesses because labor costs to install hardwire systems
would raise the overall cost significantly. A third type of security system is a
hybrid system which has both hardwire and wireless capabilities.

MONITORED WIRELESS SECURITY SYSTEMS MARKETED UNDER THE ITI(R) TRADEMARK

ITI's wireless security systems are very flexible and can be programmed
by the end-user to offer varying degrees of security, depending on the
end-user's protection desires. The systems have the ability in all security
levels to detect fire and other environmental conditions and to respond to
manual activation for police, fire and medical emergencies. Sales of these
systems represented approximately 75.3%, 75.7% and 83.7% of ITI's net sales for
1999, 1998 and 1997, respectively.

ITI offers a number of wireless and hybrid security systems to meet a
variety of price points and customer performance requirements, including:

* CONCORD. In 1998, ITI released a modular hybrid system called
Concord. By containing both hardwire and wireless
capabilities, Concord offers the installing dealer the low
price of hardwire with the flexibility of wireless. The basic
eight-zone hardwire control panel can be upgraded through the
use of modules to a 76-zone panel with lighting control,
telephone control, voice feedback and paging output for
latchkey reporting. The modular approach

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allows the installing dealer to utilize one product platform
for a wide variety of installation requirements.

* CONCORD EXPRESS. ITI initially rolled out Concord Express in
August 1999 as a hardwire security system which includes an
integrated high quality ITI radio receiver in the system
control unit at no extra cost. As a hardwire panel, this
system has more hardwire expandability than any competitive
product. Additionally, Concord Express allows the use of
wireless and/or hardwire sensors so installers can employ the
best technology for the installation. Integrating an ITI radio
receiver in the system control unit at no extra cost gives ITI
a distinct competitive advantage by allowing installers to add
wireless sensors and remote control to a traditional hardwire
system at the lowest cost in the industry.

* ULTRAGARD SYSTEM. The UltraGard system was introduced in 1996.
The UltraGard system features a 76-zone panel which operates
on 12 volts. The other products in ITI's lines operate on 6
volts. This high performance system is well suited for
commercial applications as well as the largest residential
applications.

* SIMON. The Simon system, first introduced in 1997, received
substantial enhancements in 1998. Simon is an entry-level
wireless security system aimed at those in the industry
looking for a low-cost wireless solution for mass marketing
programs or where security equipment is either given away or
installed at a loss in an effort to obtain a long-term
monitoring contract. The Simon system has the capability to
individually recognize up to 24 wireless sensors. With the
enhancement, it can now be controlled via a remote touch-tone
phone and is compatible with two-way listen-in, talk-back
alarm verification. ITI also introduced TOUCHTALK, the
industry's first wireless talking touchpad as an upgrade
option. Simon can be used with all of ITI's existing ITI
wireless sensors.

* COMMANDER 2000 SYSTEM. The Commander 2000 system was
introduced in 1994 to succeed the RF Commander system, which
was first introduced in 1990. This system was designed as an
entry level wireless security system for use in smaller
businesses, homes and apartments and has many of the advanced
features found in more expensive systems. The Commander 2000
has the capability to individually recognize up to 16 wireless
sensors and can be used with substantially all of ITI's
wireless accessories.

* CUSTOMIZED AND PRIVATE LABEL SYSTEMS. ITI has established
relationships with large security companies to develop and
manufacture customized, private label wireless security
systems. In developing these systems, ITI may modify its
existing systems by adding customized control panel software
and component packaging as requested by the customer.

SYSTEM FEATURES AND COMPONENTS OF ITI WIRELESS SECURITY SYSTEMS

ITI wireless security systems incorporate several innovative and
advanced features and components which increase product performance, reliability
and marketability:

* SUPERIOR SUPERVISED RADIO TECHNOLOGY. ITI believes its
wireless security systems incorporate the most advanced radio
technology currently available in monitored wireless systems.
Each wireless sensor in an ITI system reports to the central
control panel as a unique zone, enabling the central
monitoring station personnel to identify and communicate to
police or firefighters the exact location and nature of an
emergency. If the control panel does not receive scheduled
signals from a sensor, it reports the identity of the
particular sensor to the central monitoring station and the
end-user. This feature also allows service personnel to
quickly find a malfunctioning sensor. Through the use of
crystal-controlled radio transmitters and

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receivers, coupled with its patented Learn Mode and signaling
protocol technologies, ITI has virtually eliminated the
effects of interference and greatly increased the range of its
systems within the limitations imposed by the FCC. This
supervised radio technology enhances the reliability and
performance of ITI wireless systems and allows them to be used
in larger premises, including many commercial facilities,
where the use of wireless systems once was not feasible.

* LEARN MODE TECHNOLOGY. ITI's patented Learn Mode technology
enables control panels to automatically "learn" the identity
and type of each factory-programmed sensor in its system when
the system is installed. The Learn Mode technology is
attractive to ITI's customers because each sensor is
manufactured with a unique programmed identity. This Learn
Mode process reduces the time and cost of installing sensors
and programming the systems and allows the installation of
large numbers of security systems in densely populated areas
without interference with neighboring systems.

* TOUCH-TONE TELEPHONE USER INTERFACE. ITI was the first to
introduce the use of on- or off-site touch-tone telephones as
a user interface to control security systems. This technology
provides touch-tone telephones with all the system control
capabilities of the touchpad user interfaces manufactured by
ITI for ITI wireless security systems. This feature
contributes to end-user convenience by enabling the end-user
to control the system from on- or off-premises by using
touch-tone telephones.

* DIGITIZED VOICE TECHNOLOGY. ITI enhanced the
"user-friendliness" and convenience of its systems by
incorporating digitized voice technology. ITI wireless
security systems can "talk" to the end-user on-site with
digitized voice, and all systems except for the Commander 2000
can also "talk" over on- or off-site touch-tone telephones.
Incorporating digitized voice technology allows the end-user
to confirm commands, such as the level of protection or a
disarming signal, or to receive a status report of protection
levels and environmental conditions, such as the temperature
inside the end-user's house. In response to various foreign
sales opportunities, ITI has incorporated digitized voice
response capabilities in several foreign languages into its
systems.

* BREADTH OF SENSOR LINE. ITI believes it offers the widest
variety of wireless sensors currently available in the
security system market. ITI wireless sensors include motion
detectors; different types of intrusion sensors activated by
sound, shock, or shattering glass; photoelectric smoke
sensors; "rate-of-rise" fire sensors with a special thermostat
activated by an unusually rapid temperature increase; carbon
monoxide sensors; pocket-sized emergency transmitters; and
environmental sensors to detect such conditions as furnace
failure and flooding. ITI sensors also are the smallest
available in any monitored wireless security system. ITI
believes that its wide variety of sensors and their compact
size offer it a significant competitive advantage. Most of
ITI's wireless sensors have long-life lithium batteries, thus
increasing system reliability and convenience. Much of the ITI
wireless sensor line utilizes crystal-controlled radio
transmitters. In 1997, ITI introduced a new lower cost sensor
line based on Surface Acoustic Wave, or SAW, radio technology.

* INTERACTIVE CAPABILITIES. ITI systems communicate alarm
information to central monitoring facility personnel over
telephone lines using ITI's CS-5000 central station receiver.
ITI Toolbox(R), a PC-based software tool, allows a technician
to remotely perform certain kinds of service and programming
on ITI security systems remotely, avoiding delay and expensive
on-site service calls.

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* HOME MANAGEMENT CAPABILITIES. The ITI energy saver module,
which is available with the UltraGard and Concord systems,
enables an end-user to adjust a thermostat using either a
touchpad or an on- or off-site touch-tone telephone which can
result in reduced energy costs to the end-user. The ITI
wireless systems also can be used to control lights through
the use of touchpads. ITI has developed a power line signaling
technology that allows its system control panels to activate
sirens and light modules over the household electrical system.
Sirens and lights thus can be installed and controlled
virtually anywhere in the premises where there is an
electrical outlet.

* ALARM VERIFICATION. False alarms represent a troublesome issue
for the security industry. In 1993, ITI introduced its
Interrogator alarm verification module to address the false
alarm issue. The Interrogator gives ITI wireless systems
two-way voice capabilities through sensitive microphones and
talk-back speakers that are placed strategically throughout a
home or business. After an alarm has occurred and been
reported to the central station, the Interrogator will allow
the central station operator to either "listen in" or, if
desired, "talk back" to the subject home or business. This
built-in communicator helps enable the central station
operator to verify alarms before dispatching the police or
fire department. The Interrogator can digitally record and
play back 16 seconds of an alarm event with the simple
addition of the optional recording module. This enables the
central station operator to listen to a recording of the
actual emergency event as it happened. The Interrogator and
the optional recording module work with all of ITI's wireless
security systems and also can be sold separately for use with
other manufacturers' security systems.

HARDWIRE AND HYBRID SECURITY SYSTEMS MARKETED UNDER THE CADDX(TM) TRADEMARK

ITI has developed a line of hardwire and hybrid security systems
targeted at both the domestic and international markets. Sales of these systems
represented approximately 21.9%, 20.8% and 12.6% of total ITI net sales in 1999,
1998 and 1997, respectively. ITI offers multiple systems to satisfy the needs of
the international, new construction and low-end hardwire markets.

* NX PRODUCT LINE. In mid-1997, ITI introduced the CADDX NX-8
security system, which is designed to be a hybrid security
system that will meet various countries' regulatory
requirements throughout the world. The NX-8 is flexible,
durable and user/installer friendly. The development of the
NX-8 required several design and engineering innovations,
including the creation of special telecom and power interfaces
that would be acceptable under any country's regulations
anywhere in the world. By adding an ITI wireless receiver to
the NX-8 control panel, the NX-8 becomes a true hybrid system
with both hardwire and wireless capabilities. In 1998, ITI
built on the success of the NX-8 by introducing the NX-6 and
NX-4 security systems offering similar functionality at a
lower price point.

* RANGER PRODUCT LINE. The CADDX Ranger 9000E is a powerful,
simple and flexible hardwire panel that can become a hybrid
panel with the addition of a radio receiver. The Ranger 9000E
is suitable for residential, commercial, retail and
multi-tenant office building applications. This system
provides the ability to incorporate security, access control
and environmental process monitoring for commercial
applications. Other security control panels in the CADDX
Ranger family include the Ranger 8600, Ranger 8600E, Ranger
8980 and the Ranger 8980E.

* GLASS BREAK DETECTORS. ITI manufactures a line of glass break
detectors under the CADDX trademark. ITI's patented "3x3"
technology, which is a method of glass break detection that
monitors three specific frequency ranges for three different
sets of data and looks for a

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"match" to the "signature" of breaking glass, is incorporated
in CADDX glass break sensors, making them extremely reliable.

* OTHER HARDWIRE SECURITY PRODUCTS. ITI also manufactures
various other hardwire sensors for use in connection with
hardwire control panels, including passive infrared sensors
(or motion detectors) and seismic detectors.

FIRE PROTECTION SYSTEMS

We estimate the total fire alarm market to be $3,000,000,000, including
product, installation, service and monitoring. We estimate the manufacturers'
equipment market to be $1,200,000,000. While new to the commercial fire
equipment market, ITI will shortly be offering several commercial fire products.
The soon to be released Advent Fire System offers an excellent product solution
for the high-end fire market. The Regency product and soon to be released UL
commercial fire rated version of the CADDX NX-8 offer solutions for the retail
and small commercial fire markets.

Fire business is traditionally won by persuading specifying firms to
specify your product. It is common to take two to five years in the specifying
market for relationships to lead to sales. Business is also gained through
negotiating directly with the end-users.

* ADVENT FIRE SYSTEM, which is expected to be available in the
first half of 2000, is a full-featured, high-level system.
With its built-in multi-partition, 250 zone and long-range
wireless capabilities, Advent Fire System is targeted for
large commercial applications such as industrial complexes,
government facilities, campuses, and high-rise office and
residential complexes. The system can be powered by either one
Class I or two Class II AC power transformers for up to 6 amps
of 12/24 VDC regulated power for a large number of sensor,
siren, analog smoke loop and other hardwire peripheral
devices. Advent's capabilities can be increased by plugging in
panel input, output, and/or smoke loop expansion cards. It can
also be expanded through the built-in high speed, digital data
bus that can connect a wide array of ITI SuperBus peripherals.
The development of this product has not yet been completed and
there can be no assurance that such product will actually be
introduced into and sold in the market.

* REGENCY is a UL rated system that incorporates commercial
burglary, fire and access control into a single platform. The
integration makes it particularly attractive for retail and
small commercial applications desiring multiple functionality.

* THE NX-8 CF, which is expected to be available in the first
half of 2000, is a commercial fire version of the popular NX-8
control panel. It has 8 zones on-board and can be upgraded to
over 40 zones with the addition of modules.

ACCESS CONTROL

Access control systems monitor traffic through, and regulate access to,
buildings and other restricted areas depending upon the authority level granted
to an individual. Sales of these systems represented approximately 2.0%, 2.5%
and 2.6% of total ITI net sales for 1999, 1998 and 1997, respectively. Access
control systems consist of the following components:

* SYSTEM MANAGER OR CONTROLLER. A software-based system that
includes a database, grants or denies access based on various
criteria and produces audit or other management reporting.

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* MAGNETIC LOCKS. Magnetic lock that responds to the system
commands to lock or unlock doors.

* IDENTIFICATION CARDS. Cards, such as identification badges,
that are given to a user and that contain information
regarding the user.

* READERS. The reader uses the data on the identification card
to notify the system manager to determine if the user has the
proper authority to be granted access. With proper
authorization, the controller will send a command to unlock
the door.

Access control systems can be used for a single door with a few users
or hundreds of doors at multiple locations with thousands of users.

ITI offers a number of electronic access control systems to meet a
variety of price points and customer performance requirements, including:

* ACCESS NT. Based on Microsoft Windows NT software, this system
allows multiple work stations to be functioning simultaneously
to monitor the system, add cards, change access times, make
badges, control closed-circuit television cameras, create
reports, etc.

* ACCESS 5.0. This system has many of the same functions as
Access NT, but with a smaller system capacity that performs in
a non-multitasking operation at a lower price point. Both
Access 5.0 and Access NT are aimed at the middle to large
electronic access control installations.

* EASY ACCESS. This is a Microsoft Windows-based system that
provides the sophistication of more expensive PC-based systems
but at a low price point. Easy Access controls up to 32 doors
with a very simple to use point-and-click graphical interface.

* 451 APM. This is a stand-alone system that provides much of
the sophistication of a PC-based system without the expense of
a host computer. Each 451 system has its own microprocessor,
database and clock. Each 451 system can operate independently
or as part of a network of up to 16 APMs, allowing the control
of up to 32 doors without the use of a host computer.

* 351 APM. The 351 system is aimed at small businesses that may
have only one or two doors to protect but want to control who
gets in and at what times. The 351 system is designed to work
independently to control one or two doors and has its own
microprocessor, database and clock.

OTHER PRODUCTS

In addition to developing new features for existing products, ITI's
product development programs have produced products for related markets using
its existing technologies. Sales of these products represented approximately
0.8% in 1999 and 1.1% of total ITI net sales in 1998 and 1997.

* THE QUIK BRIDGE FAMILY. The Quik Bridge family is a group of
wireless receivers equipped with interfaces that broaden the
market opportunities for ITI Learn Mode sensors. ITI has
introduced several Quik Bridge family members. The Quik Bridge
Repeater extends the range of ITI wireless sensors attached to
ITI wireless receivers. The Quik Bridge Loop Receiver enables
adding up to 16 ITI wireless sensors to any hardwire panel
that supports a common loop ground and/or a relay unit
connection. In 1998, ITI released the Quik Bridge

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two-channel receiver, which adds up to four wireless devices
to any hardwire system. ITI also has custom receiver products
specifically designated to work with the CADDX NX line of
control panels in domestic and international markets and
certain Radionics and Detection Systems controls in the U.S.
market. In addition, the Quik Bridge family allows the use of
the ITI keychain touchpad to control ITI's and other
manufacturers' access control systems.

* CS 5000 COMPUTERIZED CENTRAL STATION RECEIVER. In 1998, ITI
released the CS 5000 as a replacement for the CS 4000 central
station receiver. The CS 5000 can be used by the central
monitoring service providers to receive and monitor
information from homes and businesses protected with ITI
wireless security systems and certain other manufacturers'
security systems. Monitoring station personnel transmit
emergency messages to police, fire, medical or other
authorities.

* LIFEGARD. Recognizing the growing elderly population, ITI
introduced in 1996 its LifeGard personal emergency response
system. Like a security system, LifeGard maintains a
communication link with a monitoring company in order to
provide the fastest possible response during an emergency.
Two-way voice communication with the monitoring company is
initiated either when the owner presses one of at least two
panic buttons, or when the system does not detect activity in
the home after an elapsed time. The LifeGard system includes a
control panel mounted on a base, a built-in Interrogator and a
water-resistant panic pendant.

SALES AND MARKETING

ITI sells ITI wireless security equipment directly to its independent
dealer network, large security companies and other private label customers, and
electric and gas utility companies. ITI sells CADDX hardwire and hybrid security
systems primarily through domestic and international distributors. Approximately
50% of CADDX branded product was sold outside of the United States and Canada in
1999.

SALES TO INDEPENDENT DEALER NETWORK. ITI has a nation-wide sales force
supporting its network of over 2,000 independent dealers. Through its
independent dealer network, ITI wireless security products are sold extensively
throughout the United States and Canada. ITI's dealer sales and support programs
include sales aids (such as sales literature and demo kits), marketing
literature and instructional videos for both dealers and end-users. In addition,
ITI provides its dealers with a wide variety of training programs and materials,
including technical, sales, marketing and business management programs and a
number of marketing newsletters. ITI recognizes its top dealers with an
incentive program which includes an annual trip to ITI's national dealer sales
meeting, which reinforces the ties between ITI and its key dealers. ITI's
Security Pro and Regency dealer programs enhance and support its independent
dealer network.

SALES TO LARGE SECURITY COMPANIES AND OTHER PRIVATE LABEL ARRANGEMENTS.
ITI designs and manufactures customized and private label systems for companies
that sell the systems on a national and regional basis. These customers offer
the potential for substantial sales volume, provide extensive geographic
coverage and, in many cases, offer the ability to sell ITI products under
nationally recognized brand names. Members of ITI's senior management team are
involved in initiating and maintaining relationships with its private label
customers.

SALES TO ELECTRIC AND GAS UTILITIES. Electric and gas utilities provide
ITI with an additional distribution channel and the opportunity to develop
related applications of its technologies. These utilities are increasingly
seeking to enter unregulated industries, including the security systems
industry, to increase their profits. This industry offers electric and gas
utilities a logical complement to their businesses, as many already have the
infrastructure in place to sell, install and repair security and home automation
systems and provide

11
<PAGE>

monthly monitoring services. Over 60 electric and other utilities are now
purchasing ITI's products. ITI has two sales representatives who sell to
utilities with support from ITI's field sales force.

INTERNATIONAL SALES

Export sales, primarily to Canada, Europe and Australia, accounted for
20.1%, 18.3% and 13.9% of ITI's net sales for 1999, 1998 and 1997, respectively.
ITI currently sells its products in over 50 foreign countries through
distributors and dealers. The CADDX NX product line was designed specifically
with the international market in mind. The NX control panels include special
telecom and power interfaces that are acceptable under most regulatory
requirements throughout the world. Furthermore, in response to various foreign
sales opportunities, ITI has incorporated into its wireless security systems
digitized voice response capabilities in several foreign languages and intends
to expand its product development and marketing efforts to increase its
international sales of wireless security products. ITI is currently designing
its next generation of wireless security systems to satisfy the power,
telephone, radio and other regulatory standards necessary to sell the systems in
the European Community. ITI has also developed a wireless receiver for the CADDX
NX hardwire panels, which creates a global hybrid product solution. Because the
NX security panels have already gained numerous international approvals, it is
helping to accelerate the introduction of ITI wireless sensors in the
international market.

SALES TO A SIGNIFICANT CUSTOMER

During the year ended December 31, 1997, ADT Security Systems, Inc.
("ADT") accounted for 25% of consolidated net sales. This customer accounted for
11% of consolidated trade accounts receivable at December 31, 1997. No one
customer exceeded 10% of consolidated sales or trade accounts receivable for the
years ended December 31, 1999 and 1998.

As of December 31, 1999 and 1998, one customer, Alarm One, Inc., a
participant in the Company's dealer financing program, had a note receivable
balance due to the Company of $10.7 million and $2.3 million, respectively.

PRODUCT DEVELOPMENT

In the years ended December 31, 1999, 1998 and 1997, ITI had research
and development expenditures of $8,800,000, $8,000,000 and $7,500,000,
respectively. These research and development expenditures have resulted in the
introduction of many new products during the past three years, including
Concord, Concord Express, the CADDX NX product line and the CS 5000 Computerized
Central Station Receiver. Additionally, ITI expects to release two new products
in 2000 for the fire alarm market. ITI expects to release the Advent fire system
in the first quarter of 2000. ITI expects the CADDX NX-8 CF system to be
available during the first half of 2000.

ITI's current product development efforts are primarily devoted to
continuing the enhancement and expansion of its product lines and technologies.
ITI continues to improve its core wireless technology through product
miniaturization, increased sensor battery life and the introduction of two-way
radio frequency devices.

Traditionally, wireless sensors have been larger than their hardwire
counterparts. The larger size is due to the need to provide space for the
addition of the required battery and radio transmitter. In some applications,
the larger size of wireless sensors has led to an aesthetic objection from
end-users. The introduction of miniaturized sensors, such as the ITI Micro
Door/Window sensor and the Micro Recessed Door/Window Sensor, is aimed at
reducing or eliminating that aesthetic concern. Because wireless devices are
battery powered, the replacement of batteries can create a service challenge for
ITI's dealers. ITI has developed a wireless sensor that can be powered for up to
20 years on a single AA lithium battery. Two-way radio frequency devices offer
benefits to both the installer and the end-user. The installer can offer
enhanced

12
<PAGE>

operation without increasing the difficulty of installation. The end-user gets
better control and feedback from the system. ITI's first two-way radio frequency
device is the TouchTalk, which is a wireless talking touchpad for its Simon
system. TouchTalk is used as an interface to operate the Simon system. TouchTalk
is installed by simply mounting it on the wall at the desired location and it
provides detailed verbal feedback on the status and operation of the Simon
system without the use of wires.

COMPETITION

The industry in which ITI participates is highly competitive, with a
large number of manufacturers providing a wide range of products. Competition is
based primarily on product reliability, the incorporation of advanced
technological features, ease of installation, marketing and sales support and
price. Market research conducted by independent third parties documents that ITI
is an established leader in the sale of wireless security equipment.

ITI's competitors in the monitored wireless security system industry
include Ademco Security Group (a division of Pittway Corporation), Linear Corp.
(a subsidiary of Nortek, Inc.) and several smaller manufacturers. ITI also
competes with numerous manufacturers of hardwire security systems, including
Ademco Security Group, Napco Security Systems, Inc., Detection Systems, Inc.,
Digital Security Controls Ltd., C&K Components (a subsidiary of Honeywell),
Silent Knight Security Systems (a subsidiary of Pittway Corporation), and SLC
Technologies B.V. (a European subsidiary of SLC). The manufacturing segment of
the security industry is undergoing change and consolidation, creating
competitors with substantial financial resources. Digital Security Controls and
Pittway have each acquired a number of security related manufacturers over the
past few years. In August 1999, Honeywell completed its acquisition of C&K
Components and in late February 2000, Honeywell acquired Pittway. The combined
strengths of SLC and ITI will allow the combined company to better compete with
competitors like Honeywell that have vastly greater resources than ITI.
Furthermore, ITI may encounter additional competition from future industry
entrants.

MANUFACTURING

ITI's production processes include printed circuit board assembly,
testing and calibration and final assembly and testing. ITI has manufacturing
facilities in North St. Paul, Minnesota and Gladewater, Texas. A Mexican
contract manufacturing facility, which is dedicated to ITI, assembles less
complex, high-volume circuit boards, such as transmitter boards, and sends them
to North St. Paul. ITI has invested in various automated printed circuit board
assembly and test equipment at its North St. Paul, Gladewater and Mexican
facilities to achieve manufacturing cost efficiencies and vertically integrate
its production processes. From time to time, ITI uses certain contract
manufacturers to perform some of its printed circuit board assembly and may
increase its use of such companies to meet any increased demand. Certain of the
chips, microprocessors and other products used in ITI's systems are obtained
from single sources. If ITI could not obtain these components from these
sources, there may be a 16-to 30-week leadtime to obtain them from a different
supplier. To help prevent delays in the shipment of its products, ITI maintains
what it believes to be a sufficient amount of certain components in inventory or
has made safety stock program arrangements with the suppliers.

INTELLECTUAL PROPERTY

ITI's success is dependent in part on its proprietary information,
technology and know-how. ITI relies on a combination of trade secret and
copyright protection and confidentiality agreements to establish and protect its
proprietary rights. In addition, ITI holds 21 patents covering various
technologies, including its Learn Mode technology, and has several patent
applications pending. ITI believes its Learn Mode technology in particular
affords it significant competitive advantages because it has allowed ITI to
substantially improve the performance and reliability of its products. ITI plans
to aggressively protect its patents and other intellectual property and to
pursue patents to protect its technology. There can be no assurance, however,
that

13
<PAGE>

ITI will be able to protect its proprietary information, technology and
know-how, deter misappropriation of its proprietary rights, or prevent third
party development of substantially similar technology and products. In addition,
there can be no assurance that any patent applications filed by ITI will result
in issued patents or that any patents issued are or will be sufficiently broad
to protect ITI's technologies or provide ITI with any material competitive
advantages. There also can be no assurance that the patents ITI has obtained in
the past or may obtain in the future will not be contested, invalidated or
circumvented.

ITI has occasionally received, and may receive in the future,
communications from third parties asserting intellectual property rights
relating to ITI's products and technologies. Upon receiving such claims, ITI
evaluates their merits and risks and on occasion has negotiated licenses where
third-party technology was necessary or useful for the development or
manufacture of ITI's products. There can be no assurance that third parties will
not assert claims against ITI with respect to existing or future products or
that any licenses will be available on reasonable terms with respect to any
third-party technology. ITI could incur substantial costs in redesigning its
products or in defending any legal action taken against it.

GOVERNMENT REGULATION

Substantially all of the components in ITI's security systems require
approval by the FCC before the systems may be marketed in the United States. The
FCC regulates all communications by telephone and radio frequency. All of ITI's
wireless security systems use radio frequency to send data from sensors and user
interfaces to the control panel. All of ITI's control panels communicate with
the central monitoring system through telephone lines. Although ITI has obtained
FCC approval of its products in the past, it cannot predict whether it will
obtain FCC approvals for components of future products or whether FCC
regulations might change with respect to ITI's current or future products. In
addition, sales of ITI's products in countries outside of the United States
usually are subject to similar types of approvals by regulatory authorities in
those countries. ITI also is subject to various federal, state and foreign laws
and regulations pertaining to the use of potentially dangerous material, the
discharge of material in the environment and otherwise relating to the
protection of the environment. ITI believes it has complied in all material
respects with all such laws and regulations

EMPLOYEES

On December 31, 1999, ITI had 687 full-time employees, consisting of
394 in manufacturing, 98 in engineering and product development, 78 in customer
service, 56 in sales, 49 in management and administration and 12 in marketing.
These employees do not include the contract workers in the Mexican facility.
None of ITI's employees are members of a collective bargaining unit, and ITI's
management believes employee relations are good.

ITEM 2. PROPERTIES

The Company's corporate headquarters and its largest manufacturing
facility are located in North St. Paul, Minnesota, in two adjacent leased
buildings that together provide approximately 148,000 square feet of
manufacturing, warehouse and office space. The leases on the North St. Paul
facilities expire on January 1, 2001. The Company believes the leases for the
facilities can be renewed under acceptable terms. The Company also owns a 33,000
square foot manufacturing and warehouse facility in Gladewater, Texas. Products
marketed under the CADDX trademark are manufactured and distributed at the
Gladewater facility. In 1999, the Company constructed a 31,063 square foot
building to enhance the Company's ability to manufacture CADDX products on a
parcel of land adjacent to its Gladewater facility. The Company also utilizes a
contract assembly plant in Navajoa, Mexico, consisting of approximately 22,000
square feet devoted exclusively to the Company's manufacturing needs.

14
<PAGE>

The Company leases small warehouse and shipping point facilities in
Anaheim, California, Richmond, Virginia and Toronto, Ontario, Canada.

The Company considers its key properties identified above as suitable
to its business and, in general, adequate for its current and near-term needs.

ITEM 3. LEGAL PROCEEDINGS

On August 17, 1995, the Company commenced an action for patent
infringement against Pittway Corporation and its subsidiary, Ademco Distribution
Inc., in the United States District Court for the District of Minnesota. On
March 9, 1998, the jury found that the Ademco VISTA Plus/5800 family of wireless
security systems infringes the Company's Learn Mode patent. The Court awarded
the Company damages of approximately $36 million for lost profits and royalties,
as well as prejudgment interest of approximately $3 million, bringing the total
judgment to approximately $39 million. Pittway Corporation appealed the verdict.

On June 1, 1999, the United States Court of Appeals for the Federal
Circuit upheld the patent's validity, but reversed the jury's finding of
infringement. The United States Court of Appeals has also denied the Company's
request for a rehearing of the case. As a result, the Company recorded in the
second quarter of 1999 a non-cash write-off of $4.1 million for certain
litigation costs incurred in connection with the patent litigation against
Pittway that were previously capitalized.

On October 6, 1999, the Company filed a petition for a Writ of
Certiorari with the United States Supreme Court asking the Court to review the
ruling by the Federal Circuit Court of Appeals. The United States Supreme Court
denied ITI's petition on December 6, 1999.

Pittway has announced that in 1997 it had "introduced an improved
method of enrolling transmitters in its VISTA series of control panels." Pittway
calls this new method "QED." While the Company has maintained that Pittway's QED
products also infringe the Company's LEARN MODE patent, the judge would not
allow the Company to add Pittway's QED products to the action commenced in
August of 1995. Accordingly, the Company commenced a second patent infringement
lawsuit against Pittway and Ademco Distribution, Inc. on August 3, 1998, for
infringement of the Company's Learn Mode patent. In light of the outcome in the
first infringement suit against Pittway, the Company and Pittway jointly
stipulated on December 17, 1999, that the second suit be dismissed with
prejudice.

In addition, the Company experiences routine litigation in the normal
course of its business. The Company does not believe that any of this routine
litigation will have a material adverse effect on the financial condition or
results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during
the Company's fourth quarter ended December 31, 1999, or through the date of
this filing.

15
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded in the over-the-counter market and
is quoted on The Nasdaq National Market under the symbol "ITII." As of March 20,
2000, there were approximately 65 record holders of the Company's Common Stock.

The following table sets forth, on a quarterly basis, the high and low
closing sale prices for the Company's Common Stock for the two years ended
December 31, 1999:

HIGH LOW
---- ---
1998
----
Quarter:
First $ 26-1/8 $ 20
Second 33 26
Third 28-1/2 23
Fourth 32-1/8 24-1/2

1999
----
Quarter:
First $ 36-7/8 $ 29-7/8
Second 29-1/2 21-7/8
Third 30-1/16 20-9/16
Fourth 30-1/2 26-1/2

The Company has never paid dividends on its Common Stock. The Company
presently intends to retain any and all future earnings for the operation and
expansion of its business and does not expect to pay any cash dividends on its
Common Stock in the foreseeable future. See applicable discussion under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

16
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The financial information set forth below should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and Notes
thereto.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales .................................... $ 121,596 $ 108,986 $ 100,999 $ 93,331 $ 79,012
Cost of goods sold ........................... 64,397 58,815 53,628 48,217 42,126
Inventory purchase accounting adjustment(1) .. 725
--------- --------- --------- --------- ---------
Gross profit ................................. 57,199 50,171 46,646 45,114 36,886
Operating expenses:
Marketing, general and administrative ...... 23,858 19,405 18,421 15,005 12,982
Research and development, net .............. 8,807 7,974 7,491 6,270 5,178
Patent litigation costs(2) ................. 4,104
Purchased research and development costs(3) 5,200
Amortization of intangible assets .......... 1,412 1,412 1,233 912 912
--------- --------- --------- --------- ---------
Operating income ............................. 19,018 21,380 14,301 22,927 17,814
Interest income (expense), net ............... 1,856 805 627 815 38
Other income (expense), net .................. (7) 49 (122) 5 (13)
--------- --------- --------- --------- ---------
Income before income tax expense and
extraordinary item ......................... 20,867 22,234 14,806 23,747 17,839
Income tax expense(3) ........................ 7,515 8,004 7,202 8,655 6,488
--------- --------- --------- --------- ---------
Net income ................................... $ 13,352 $ 14,230 $ 7,604 $ 15,092 $ 11,351
========= ========= ========= ========= =========
Per share amounts, basic:
Net income ................................. $ 1.58 $ 1.68 $ .91 $ 1.69 $ 1.31
Weighted average common
shares outstanding ...................... 8,453 8,461 8,394 8,930 8,671
========= ========= ========= ========= =========
Per share amounts, diluted:
Net income ................................. $ 1.52 1.61 .87 1.63 $ 1.26
Weighted average common and common
equivalent shares outstanding ........... 8,803 8,860 8,705 9,246 9,022
========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $27,829 $29,462 $31,435 $32,870 $23,914 $27,139 $29,326 $28,607
Gross profit(1) .......... 13,000 13,791 14,872 15,536 10,862 12,418 13,305 13,584
Net income (loss)(2)(3) .. 3,611 1,414 4,343 3,984 2,534 3,398 3,956 4,342
Per share amounts:
Basic(4) ............... $ .43 $ .17 $ .51 $ .47 $ .30 $ .40 $ .47 $ .52
Diluted(4) ............. $ .41 $ .16 $ .50 $ .45 $ .29 $ .38 $ .45 $ .50
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital ..................... $ 52,134 $ 43,015 $ 36,336 $ 42,047 $ 34,866
Total assets ........................ 132,110 115,957 103,959 89,794 80,077
Current liabilities ................. 11,959 10,874 8,995 6,056 6,225
Total debt ..........................
Total liabilities ................... 17,704 18,550 16,258 10,468 9,986
Stockholders' equity ................ 114,406 97,407 87,701 79,326 70,091
</TABLE>

- -------------------------

(1) In the second quarter of the year ended December 31, 1997, the Company
recorded a non-recurring purchase accounting adjustment to cost of goods sold of
$725,000, which resulted from the sale of inventory which had been written-up to
reflect estimated selling price less the sum of estimated costs of completion
and selling at the time of the acquisition of Caddx Controls, Inc.

(2) During the second quarter of 1999, the Company recorded a non-cash charge of
$4.1 million related to certain litigation costs incurred in connection with the
patent litigation against Pittway that were previously capitalized. This
one-time charge, net of applicable income tax benefits, impacted the earnings of
the Company approximately $2.6 million or $0.30 per diluted share.

(3) The Company recorded a non-recurring purchase accounting adjustment in the
second quarter of the year ended December 31, 1997, which resulted from the
write-off of $5.2 million for the value assigned to technology in process at the
time of the acquisition of Caddx Controls, Inc. This charge is not deductible
for income tax purposes and, as such, no related tax benefit has been recorded
as a part of the Company's income tax expense. During the fourth quarter of
1998, the Company recognized a $140,000 after-tax benefit from the reversal of
certain expired customer rebates.

(4) The summation of quarterly per share amounts may not equal the calculation
for the full year, as each quarterly calculation is performed discretely.

18
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Net sales increased by $12.6 million, or 11.6%, from $109.0 million for
1998 to $121.6 million for 1999. As a percentage of sales, gross margin
increased from 46.0% in 1998 to 47.0% in 1999. Operating income decreased by
$2.4 million from $21.4 million for 1998 to $19.0 million for 1999. The Company
recorded a second quarter non-cash charge of $4.1 million related to certain
litigation costs incurred in connection with the patent litigation against
Pittway that were previously capitalized. This one-time charge, net of
applicable income tax benefits, impacted the 1999 earnings of the Company by
approximately $2.6 million, or $.30 per diluted share. Operating income for 1999
was further impacted by $763,000, or $.07 per diluted share, of expenses
associated with the proposed merger with SLC. For the year ended December 31,
1999, diluted per share earnings were $1.52 compared to $1.61 for the prior
year.

On September 28, 1999, the Company entered into a definitive agreement
to merge with SLC. SLC, headquartered in Portland, Oregon, is a global
integrated communications technology company with products for commercial
security, fire protection, CCTV, electronic access control and fiber optic
communications systems. SLC has sales and technical support organizations in 27
countries and manufacturing and logistics organizations in the United States,
the Netherlands, Ireland, Australia and China.

The transaction, which will be treated as a purchase of the Company by
SLC for accounting purposes, is structured as a stock-for-stock merger of SLC
into the Company, with the Company issuing approximately 15.2 million shares to
SLC. In addition, the Company's stockholders will have the right to elect to
receive from the newly merged company $36.50 in cash at closing for each share
of the Company's common stock, subject to the limitation that no more than 50%
of the total number of shares of the Company's common stock issued and
outstanding immediately prior to the closing be exchanged for cash. As a result
of the transaction, SLC stockholders will have an approximate 63.5% ownership
position in the new company on an equivalent share basis calculated under the
treasury stock method without giving effect to the cash election. Assuming that
50% of the Company's outstanding common stock outstanding immediately prior to
the closing is exchanged for cash, SLC stockholder's percentage of ownership
would increase to approximately 78%. The merger has been approved by the Board
of Directors of both companies and is subject to approval by the Company's
stockholders, approval by regulatory authorities and other customary closing
conditions. A special stockholders meeting to vote on the merger is scheduled
for May 2, 2000.

On June 18, 1998, the Board of Directors authorized the repurchase,
from time to time, of up to 1,000,000 shares of the Company's common stock in
the open market or in private transactions. Total repurchases of 245,200 shares
occurred during the third quarter of 1998 under this authorization. This action
also canceled the stock repurchase program authorized on November 22, 1996, that
allowed for the purchase of up to 900,000 shares of the Company's common stock.
The Company purchased 90,000 and 621,500 shares in 1997 and 1996, respectively,
under the November 22, 1996, authorization.

On May 22, 1997, the Company completed the cash purchase of the Regency
product line and dealer program from the Silent Knight Division of Willknight,
Inc., located in Minneapolis, Minnesota, for $1.8 million. In the event sales of
Regency products over the 36-month period ending May 2000 exceed certain levels,
a contingent payment of up to $800,000 will be made. At December 31, 1999, the
Company believes that it is unlikely that any payment under this contingency
will be made. The purchase price was allocated to the estimated fair value of
the assets acquired, primarily to customer lists, which will be amortized over
its expected useful life of 10 years.

On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX for $19.0 million in cash. In conjunction with this acquisition, the
Company also purchased from the majority shareholder of CADDX the manufacturing
facility leased by CADDX for $530,000. Immediately following the acquisition,
the corporate name was changed to CADDX Controls, Inc. CADDX, located in
Gladewater, Texas, designs, manufactures and markets hardwire electronic
security systems in the United States and certain international locations.

19
<PAGE>

The CADDX acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have been
included in the Company's financial statements from the effective date, April
30, 1997. The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date, including $4.0 million to net current assets, $1.2 million to property and
equipment, $1.25 million to customer lists, principally related to CADDX
customers outside the United States, $2.1 million to net long-term deferred tax
liabilities, $3.75 million to trade names and $5.2 million to technology under
development, leaving a $5.7 million excess of cash paid (including transaction
costs) over net assets acquired. In May 1997, the Company made a $5.2 million
non-recurring charge to operations for the value assigned to technology in
process at the time of the acquisition. The product was introduced in the last
half of 1997 and has been commercially successful. Also, subsequent to the
acquisition, the Company included in cost of goods sold in the second quarter of
1997, a $725,000 non-recurring purchase accounting adjustment which resulted
from the sale of inventory which had been written-up to reflect estimated
selling price less the sum of estimated costs of completion and sale at the time
of the acquisition.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the
percentage of net sales represented by certain items included in the
Consolidated Statements of Operations for the year ended December 31:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0%
Cost of goods sold.............................. 53.0 54.0 53.1
Inventory purchase accounting adjustment........ .7
------ ------ ------
Gross profit.................................... 47.0 46.0 46.2
Operating expenses:
Marketing, general and administrative......... 19.6 17.8 18.2
Research and development...................... 7.2 7.3 7.4
Patent litigation costs....................... 3.4
Purchased research and development costs...... 5.2
Amortization of intangible assets............. 1.2 1.3 1.2
------ ------ ------
Operating income................................ 15.6% 19.6% 14.2%
====== ====== ======
</TABLE>

Net sales to the Company's ten largest security system customers and to
all other customers were as follows for the year ended December 31:

<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
(Dollars in thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Ten largest customers ..... $ 43,752 36% $ 35,696 33% $ 45,695 45%
All other customers ....... 77,844 64 73,290 67 55,304 55
-------- -------- -------- -------- -------- --------
$121,596 100% $108,986 100% $100,999 100%
======== ======== ======== ======== ======== ========
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

NET SALES. Net sales increased by $12.6 million, or 11.6%, from $109.0
million for 1998 to $121.6 million for 1999. The increase in net sales is
attributable to volume increases, primarily reflecting the successful
introduction of the Company's new products designed for the mass market portion
of the industry.

Sales to the Company's traditional dealers, the utility market,
international markets and into distribution increased 11.8%, 17.0%, 18.4% and
10.0%, respectively, over 1998 levels. Sales of commercial products (REGENCY and
access control systems) were down 16.0% from 1998.

20
<PAGE>

GROSS PROFIT. Gross profit increased from $50.2 million for 1998 to
$57.2 million for 1999, primarily due to the increased sales in 1999. As a
percentage of sales, gross margin increased from 46.0% in 1998 to 47.0% in 1999.
This increase was primarily due to 1998 margins being depressed as a result of
excess capacity in the Company's North St. Paul manufacturing facility in the
first half of 1998 due to the loss of business from the Company's largest
customer in 1997.

MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $19.4 million for 1998 to $23.9 million
for 1999. Expressed as a percentage of net sales, these expenses increased from
17.8% for 1998 to 19.6% for 1999. This increase can be attributed to a $1.1
million increase in bad debt expense primarily due to two large customers
defaulting on their open trade accounts in the fourth quarter of 1999, $763,000
of expenses related to the SLC merger, and increased employment costs associated
with the increased sales volume and new product introductions.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased from $8.0 million for 1998 to $8.8 million for 1999 as the Company
continued its emphasis on research and development. New products introduced in
1999 include the CONCORD EXPRESS security system, a very low cost control panel
aimed directly at the hardwire installation market and the release of upgrades
to the feature content of the Company's traditional control panels. The Company
also continues development on its Advent(R)platform, which is designed for the
commercial burglary and fire market. The Company anticipates that it will
continue this high level of development activity in 2000.

PATENT LITIGATION COSTS. During the second quarter of 1999, the Company
recorded a non-cash charge of $4.1 million related to certain litigation costs
incurred in connection with the patent litigation against Pittway that were
previously capitalized. This one-time charge, net of applicable income tax
benefits, impacted the 1999 earnings of the Company by approximately $2.6
million or $0.30 per diluted share.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related
intangible assets remained constant for 1999 and 1998 at $1.4 million.

NET INTEREST INCOME. Net interest income increased from $805,000 for
1998 to $1.9 million for 1999. The Company has continued to increase
participation in the ITI Finance program. Interest earned under this program
increased from $364,000 in 1998 to $1.6 million in 1999.

INCOME TAX EXPENSE. Income tax expense decreased from $8.0 million for
1998 to $7.5 million for 1999. The Company's effective income tax rates for
these periods vary from the statutory rate primarily due to the
non-deductibility for income tax purposes of amortization of excess of cost over
net assets acquired, state income taxes net of federal tax benefit, and other
tax credits.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET SALES. Net sales increased by $8.0 million, or 7.9%, from $101.0
million for 1997 to $109.0 million for 1998. The increase in net sales is
attributable to business acquisitions and volume increases, primarily reflecting
the successful introduction of the Company's new products designed for the mass
market portion of the industry.

Net sales for 1997 include eight months of revenue for the CADDX
acquisition and the Regency product line. Excluding the effect of the
acquisitions and sales to the branch operations of ADT, the Company's 1997
largest customer, sales to all other customers increased 26.6% from 1997. Sales
to ADT's branch operations declined from approximately 21% of total sales in
1997 to less than 1% of total sales in 1998.

GROSS PROFIT. Gross profit increased from $46.6 million for 1997 to
$50.2 million for 1998, primarily due to the increased sales in 1998. As a
percentage of sales, gross margin decreased from 46.2% in 1997 to 46.0% in 1998.
This decrease was primarily due to excess capacity in the Company's North St.
Paul manufacturing facility in the first half of the year, which resulted from
the loss of business from the Company's largest customer in 1997, and due to
additional

21
<PAGE>

employee benefits in the CADDX subsidiary that were planned at the time of the
acquisition but not implemented until January 1998. In addition, 1997 margins
were negatively impacted by the purchase accounting adjustment of $725,000, or
.7% of sales, which resulted from the sale of inventory that had been written-up
at the time of the acquisition.

MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $18.4 million for 1997 to $19.4 million
for 1998 due to 1998 expenses reflecting a full year of the CADDX acquisition as
compared to eight months of such expenses in 1997. Expressed as a percentage of
net sales, these expenses decreased from 18.2% for 1997 to 17.8% for 1998. This
decrease can be attributed to increased sales and the fact that a significant
portion of these expenses are of a fixed nature.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased from $7.5 million for 1997 to $8.0 million for 1998 as the Company
continued its emphasis on research and development. New products introduced in
1998 include Concord(TM), a modular hybrid control panel that allows dealers to
start with a low-cost hardwire platform with the ability to add wireless
sensors, the NX-4 and NX-6 systems that are smaller versions of the Company's
successful NX-8 panel and the release of upgrades to the feature content of the
Company's traditional control panels and central station receiver. The Company
also continues development on its Advent(R) platform, which is designed for the
commercial burglary and fire market.

PURCHASED RESEARCH AND DEVELOPMENT COSTS. During the second quarter of
1997, in conjunction with the acquisition, the Company recorded a $5.2 million
non-recurring charge to operations for value assigned at the acquisition date to
purchased technology under development.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related
intangible assets increased from $1.2 million for 1997 to $1.4 million for 1998.
This increase is attributable to the Company's second quarter 1997 acquisitions.

NET INTEREST INCOME. Net interest income increased from $627,000 for
1997 to $805,000 for 1998. The Company had utilized a substantial portion of its
cash and cash equivalents in late 1996 and early 1997 to purchase the Company's
common stock through its stock repurchase program and for the second quarter
1997 acquisitions. The Company had steadily increased its cash balances
throughout 1998 until the third quarter when the Company repurchased, under its
June 18, 1998, stock repurchase program, 245,200 shares of its common stock for
a total of $6.3 million. In addition, the Company has increased participation in
the ITI Finance program. Interest earned under this program increased from
$159,000 in 1997 to $364,000 in 1998.

INCOME TAX EXPENSE. Income tax expense increased from $7.2 million for
1997 to $8.0 million for 1998. The Company's effective income tax rates for
these periods vary from the statutory rate primarily due to the
non-deductibility for income tax purposes of amortization of excess of cost over
net assets acquired, state income taxes net of federal tax benefit, and other
tax credits. The effective rate in 1997 was also impacted by the
nondeductibility of the purchased research and development costs.

LIQUIDITY AND CAPITAL RESOURCES

On April 30, 1997, the Company entered into an unsecured $15.0 million
bank revolving credit facility. The facility provides for interest calculated,
at the Company's option, at LIBOR plus 1.0% or the commercial bank's base rate
less 1.25%. In addition, the facility requires a commitment fee of 0.1% per
annum on the unused portion of the facility. The agreement allows for payment of
annual dividends equal to 25% of the Company's net income for the immediately
preceding fiscal year and requires the maintenance of specified financial ratios
and minimum net worth. No amounts were outstanding under this facility at any
time during 1999.

The Company has funded its operations primarily with cash from
operations. The Company generated net cash from operating activities of $7.6
million for 1999, $9.4 million for 1998 and $18.0 million for 1997. Net cash
provided by operating activities for 1999 resulted primarily from $13.4 million
of net income, $4.2 million of depreciation and

22
<PAGE>

amortization charges, $4.1 million non-cash charge for patent litigation costs
and $1.5 million increase in the Company's allowance for doubtful accounts. The
changes in operating assets and liabilities resulted in a use of cash of $13.1
million, which included a $2.5 million increase in accounts receivable, a $1.2
million reduction in accounts payable and a $12.9 million increase in notes
receivable from the Company's dealer financing program, less $1.3 million source
of cash from a decrease in inventory and a $3.4 million increase in income taxes
payable. Accounts receivable has increased primarily due to a 14.9% or $4.3
million increase in sales in the fourth quarter of 1999 as compared to the
fourth quarter of 1998.

During 1999, the Company used $7.1 million for investing activities,
consisting primarily of the plant expansion at its CADDX facility in Gladewater,
Texas, along with the purchase of property and equipment totaling $5.1, and the
issuance of notes receivable by the Company's finance program of $1.6 million.
The Company expects that purchases of property and equipment in 2000 will be
approximately $3.5 million.

Cash generated by financing activities consisted of $3.6 million of
proceeds paid to the Company from the exercise of stock options.

A substantial amount of the Company's working capital is invested in
accounts receivable and inventories. The Company periodically reviews accounts
receivable for non-collectibility and inventories for obsolescence and
establishes allowances it believes are appropriate. In addition, the Company
periodically assesses the recoverability of intangible assets based on
undiscounted cash flows.

The Company believes that cash flow from operations and funds currently
available will be adequate to fund its working capital and capital expenditure
requirements, as a stand-alone company, for the foreseeable future. Cash flow
requirements may be impacted by the proposed merger with SLC.

LITIGATION

23
<PAGE>

EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS

The Company believes that inflation and foreign currency fluctuations
have not had a significant effect on its operations. Currently, the Company does
not conduct any transactions or maintain any accounting records in any European
currency. As such, the Company believes that there has not been, nor will there
be, any material effect on its operations as a result of the conversion by
eleven member states of the European Union to a common currency which occurred
on January 1, 1999.

FINANCIAL INSTRUMENTS

The only financial instruments the Company maintains are in accounts
receivable and notes receivable. The Company believes that the interest rate
risk related to these accounts is not significant. The Company manages the risk
associated with these accounts through periodic reviews of the carrying value
for non-collectability and establishment of appropriate allowances in connection
with the Company's internal controls and policies. The Company does not enter
into hedging or derivative instruments.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue is the inability of many computer programs to
correctly identify dates occurring after December 31, 1999, because they use two
digits rather than four digits to identify years. This could cause a computer
system failure or miscalculations, resulting in disruptions of operations
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.

Prior to December 31, 1999, the Company completed an assessment of the
Year 2000 and believed that existing software was compliant and that the Year
2000 issue would not pose significant operational problems for its computer
systems or the Company. As of January 1, 2000, and through the date of this
filing, the Company has not experienced any significant Year 2000 issues related
to internal operations or the operations of its key suppliers, vendors or
customers.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Consolidated Financial Statements and Notes thereto commencing at
Page F-1.

The Quarterly Financial Data contained in Item 6 hereof is incorporated
by reference in Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in, or disagreements with, the accountants
for the Company which require reporting under Item 9.

24
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

INFORMATION REGARDING DIRECTORS

The following discussion sets forth certain information regarding the
Directors of the Company.

THOMAS L. AUTH, age 55, has been an executive officer of Interactive
Technologies, Inc., a wholly owned subsidiary of the Company ("Interactive
Technologies"), since 1981 and its President since 1983. He has been President
and Chief Executive Officer of the Company since March 1993 and a director since
May 1992. Mr. Auth was appointed Chairman of the Board of Directors of the
Company on April 1, 1997. Mr. Auth is currently a director, Chief Executive
Officer and President of Interactive Technologies, a director of CADDX Controls,
Inc., a wholly owned subsidiary of the Company ("CADDX"), a director and
President and Treasurer of ITI International, Inc., a wholly owned subsidiary of
Interactive Technologies ("ITI International"), and a director and Chief
Executive Officer of ITI Finance Corporation, a wholly owned subsidiary of
Interactive Technologies ("ITI Finance"). Mr. Auth also is a director of
MedAmicus, Inc., a publicly held company, and Ergodyne Corporation, EH
Publishing, Inc., Vomela Specialty Company, and CompU-Shop, Inc., which are
privately-held companies. He has served as the Treasurer and a Board member of
the Security Industry Association and is also a certified public accountant.

W. WALLACE MCDOWELL, JR., age 63, has been a director of the Company
since May 1992 and served as Chairman of the Board of Directors from May 1992 to
April 1997. On November 1, 1994, he became a private investor. From 1991 until
November 1, 1994, he was a Managing Director of Morgan Lewis Githens & Ahn
("MLG&A"), a privately-owned international investment banking and leveraged
buyout firm which was founded in 1982. From 1983 until January 1991, Mr.
McDowell was Chairman and Chief Executive Officer of the Prospect Group, Inc.,
which was founded as a private venture capital company and evolved into a
diversified leveraged acquisition company. Mr. McDowell is a trustee of True
Crossing, a mutual fund registered under the Investment Company Act of 1940, as
amended.

PERRY J. LEWIS, age 62, has been a director of the Company since May
1992 and was President from May 1992 until March 1993. Mr. Lewis was a founding
partner of MLG&A and has served as a partner of that firm since 1982. He has
been a general partner of MLGAL Partners, L.P. since April 1987. Mr. Lewis is a
director of Aon Corporation and AMFM, Inc., which are publicly-held companies.

SANGWOO AHN, age 61, has been a director of the Company since May 1992.
He is a founding partner of MLG&A and has served since April 1982 as a partner
of that firm. He has been a general partner of MLGAL Partners, L.P., since April
1987. Mr. Ahn is also a director of Kaneb Pipe Line Partners, L.P., Kaneb
Services, Inc., PAR Technologies, Inc. and Quaker Fabric Corporation, which are
publicly-held companies.

WALTER R. BARRY, JR., age 66, has been a director of the Company since
February 1995. Mr. Barry is a director of Buffets, Inc., a publicly-held
company, and he also serves as a director of St. Cloud Industries, Inc., which
is a privately-held company. Until January 1, 1988, Mr. Barry served as an
Executive Vice President of General Mills, Inc., a manufacturer and marketer of
consumer foods.

JOE HURST, age 44, has been employed by CADDX since 1986 and has been
President and a director of CADDX since 1987. Mr. Hurst has been a Senior Vice
President of the Company since May 22, 1997. Mr. Hurst served as President of
the Security Industry Association, a security industry trade association
("SIA"), from 1993 to 1995.

All directors hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified or until their
earlier death, resignation or removal from office. Immediately after the merger
of SLC into ITI, nine individuals will serve on the Board of the combined
company. Two of these individuals will be Thomas L. Auth and Perry J. Lewis,
current directors of ITI. The remaining seven will be selected by the Board of
Directors of SLC. Information regarding the remaining directors is contained in
the proxy statement mailed to stockholders in connection with

25
<PAGE>

approval of the proposed merger.

INFORMATION REGARDING CERTAIN EXECUTIVE OFFICERS

THOMAS L. AUTH -- See Information Regarding Directors.

JOE HURST -- See Information Regarding Directors.

CHARLES E. BRISKEY, age 52, has been employed by Interactive
Technologies in various capacities since July 1981. Mr. Briskey has served as
Vice President, Operations of Interactive Technologies since July 1985. He has
been an executive officer of the Company since March 1993. He has been a Senior
Vice President of the Company since March 1996 and Treasurer of the Company
since March 1993. He also serves as a director and Vice President and Secretary
of ITI International.

CHARLES A. DURANT, age 43, has been an employee of the Company and
Interactive Technologies since January 1996. He became Secretary of the Company
in March 1996 and was appointed Vice President, General Counsel and Secretary of
the Company in May 1997. Mr. Durant also serves as Vice President, General
Counsel and Secretary of Interactive Technologies, a director, Secretary and
Treasurer of CADDX, and a director, President and Secretary of ITI Finance. From
September 1989 until January 1996, he was an attorney at Winthrop & Weinstine,
P.A., which provides legal services to the Company. Prior to entering the legal
profession, he held various accounting positions with Honeywell Inc.

REED G. GROTHE, age 44, has been Vice President, Sales of Interactive
Technologies since March 1996 and has been employed at Interactive Technologies
since February 1995. He was Executive Vice President, Sales and Administration
for General Office Products Company, a regional distributor of office equipment,
supplies and furnishings, from June 1990 to February 1995. From 1986 to 1989, he
was President of Executone of Minnesota, a regional distributor of telephone and
hospital communication systems.

GERALD U. KLASEN, age 50, has been Vice President, International and
Commercial Sales of Interactive Technologies since March 1997. From 1977 to
1997, he held various executive positions with Swiss Industrial Group (SIG),
Neuhausen, Switzerland, including Vice President Sales and marketing, SIG North
America, Vice President Sales and Marketing, Doboy Division, and Vice President
positions in administration and human resources. SIG is an international
manufacturer and marketer of sophisticated plant automation equipment.

DUANE PAULSON, age 44, has been Vice President, Marketing of
Interactive Technologies since March 1996 and has been employed in various
marketing positions at Interactive Technologies since 1991. From August 1988 to
March 1991, he was a management consultant to member utilities while on the
staff of the National Rural Electric Cooperative Association. From March 1980 to
August 1988, he held various marketing and public relations positions with
United Power Association, a Minnesota utility. Mr. Paulson has been a director
of SIA since 1995 and an executive officer of the SIA since September 1998. He
is also a director and president elect of the Home Automation Association, a
trade association, since February 1999.

JACK A. REICHERT, age 43, joined Interactive Technologies in February
1991 as Controller and became an executive officer of the Company in September
1994. He now serves as Vice President, Finance of the Company. Mr. Reichert also
serves as Vice President, Finance and Administration of Interactive Technologies
and a director, Vice President and Treasurer of ITI Finance. From May 1990 until
February 1991, he was Controller at American Coating Technology, Inc., a paper
coating concern. From 1983 until May 1990, Mr. Reichert held various accounting
positions with Donaldson Company, Inc., a multinational manufacturer of
filtration products and accessories. He is also a certified public accountant.

BRIAN K. SEEMANN, age 42, has been employed by Interactive Technologies
since August 1995. Mr. Seemann began at Interactive Technologies as Director of
Engineering, Alarm Systems. Since July of 1998, he has served as Vice President

26
<PAGE>

of Engineering of Interactive Technologies. Prior to being employed at the
Company, Mr. Seemann has been employed in various engineering and management
capacities in the utility meter reading (at Itron, Inc. and E.F. Johnson),
semiconductor, process control and aerospace industries (at Rosemount, Inc.).

The officers of the Company are elected by the Board of Directors and
hold office until their successors are chosen and qualified or until their
earlier death, resignation or removal from office.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership of the Company's Common Stock and other equity securities with the
Securities and Exchange Commission. Based upon inquiries made by the Company of
its executive officers and directors, and based solely upon copies of such
reports received from the Company's 10% beneficial owners of Common Stock, the
Company believes that during 1999 all of these filing requirements were
satisfied.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

FEES AND REIMBURSEMENT OF EXPENSES

Effective in 1995, the Company's Board of Directors authorized payment
to all nonemployee directors who are not affiliated with MLG&A of a $12,000 per
year fee, a fee of $750 per meeting attended of the Board of Directors or a
Committee of the Board of which they are members, and the reimbursement of all
out-of-pocket expenses incurred by them in attending meetings of the Board or
Committees of the Board. Nonemployee directors who are affiliated with MLG&A are
reimbursed for all out-of-pocket expenses incurred by them in attending meetings
of the Board or Committees of the Board.

On January 12, 1999, the Company's Board of Directors authorized
payment to all nonemployee directors, regardless of their affiliation with
MLG&A, of a $12,000 per year fee, a fee of $750 per meeting attended of the
Board of Directors or a Committee of the Board of which they are members, and
the reimbursement of all out-of-pocket expenses incurred by them in attending
meetings of the Board or Committees of the Board.

Directors fees were paid to the following directors, in the following
amounts, in 1999:

Name: Amount:
---- ------

Sangwoo Ahn $12,000
Walter R. Barry, Jr. $15,000
Perry J. Lewis $12,000
W. Wallace McDowell, Jr. $15,000
William C. Ughetta, Jr. $ 9,000

DIRECTOR PLAN AND PARTICIPATION IN STOCK INCENTIVE PLAN

The following description of the Director Plan is qualified in its
entirety by reference to the text of the Director Plan.

The Director Plan is administered by the Board of Directors, which may
delegate its authority to a committee of the Board. Except for decisions
regarding who is eligible to participate in the Director Plan, the number of
shares subject to options granted under the Director Plan, and the exercise
price and term of such options (which are determined pursuant to a formula set

27
<PAGE>

forth in the Director Plan, as described below), the Board of Directors makes
any determinations necessary or advisable for the administration of the Director
Plan consistent with its terms, including when and the terms under which the
options will vest.

The Director Plan currently provides for the grant of options to
acquire up to 75,000 shares of the Company's Common Stock, and a total of 75,000
shares has been reserved by the Board of Directors for issuance pursuant to
options granted under the Director Plan. As of February 25, 1999, no shares were
subject to outstanding options, and 75,000 shares were available for future
grants of options under the Director Plan. Only directors that are not employees
of the Company, Interactive Technologies, or any other subsidiary of the Company
("Nonemployee Directors") are eligible to receive options under the Director
Plan. A Nonemployee Director, upon becoming a director of the Company, is
automatically granted under the Director Plan an option to purchase 7,500 shares
of Common Stock at an exercise price equal to the "Fair Market Value" of the
Common Stock on the date of grant, as the term "Fair Market Value" is defined in
the Director Plan. Options granted under the Director Plan vest as determined by
the Board of Directors at the time of grant. The Board of Directors, in its sole
discretion, may permit a participant under the Director Plan to surrender to the
Company shares of Common Stock previously acquired by the participant as part or
full payment for the exercise of a stock option, and such surrendered shares
would be valued at their Fair Market Value on the date of exercise. Options
granted under the Director Plan are not intended to be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

The Director Plan terminates on February 2, 2005, and no options may be
granted under the Director Plan after such date.

Effective February 3, 1995, and as approved by the Company's
stockholders at the annual meeting of stockholders held on May 10, 1995, Messrs.
McDowell, Lewis, Ahn, Ughetta and Barry, as Nonemployee Directors of the
Company, each was granted under the Director Plan a non-qualified option to
purchase 7,500 shares of Common Stock at an exercise price of $25.88 per share,
which was the "Fair Market Value" of the Common Stock on such date as defined in
the Director Plan (consisting of the officially quoted closing price on the date
of grant). The options granted on February 3, 1995, became exercisable to the
extent of one-third of the number of shares underlying each option (or 2,500
shares) on the date of grant of the options and on the first and second
anniversary dates of the grant of the options. Therefore, as of February 3,
1997, each such option was exercisable to the extent of 7,500 shares.

The stated purpose of the Director Plan is to advance the interests of
the Company through the motivation, attraction and retention of its Nonemployee
Directors. In light of this purpose and the substantial reduction in the market
value of the Company's Common Stock following the November 15, 1996,
announcement by the Company that it had received notice from its largest
customer, ADT, stating that ITI was not then included in ADT's future strategic
product planning and should anticipate a reduction in purchase orders from ADT
during the first quarter of 1997, the Board of Directors approved on May 22,
1997, the cancellation of options awarded to date under the Director Plan and
the replacement of such options with options under the Stock Incentive Plan with
an exercise price equal to the market value of the Common Stock of the Company
on the close of business on May 22, 1997, which was $16.00. The Board amended
the Stock Incentive Plan to allow awards thereunder to be made to Nonemployee
Directors of the Company, as well as employees, so that newly issued options
under the Stock Incentive Plan could be exchanged for all options outstanding
under the Director Plan as of May 22, 1997.

On May 13, 1998, the Company's Board of Directors awarded each
Nonemployee Director of the Company as of May 14, 1998, options under the Stock
Incentive Plan to purchase 7,500 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock as of the close of business
on May 14, 1998 (I.E., $30.50 per share). These options immediately vested upon
award.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

Recommendations regarding compensation paid to the Company's executive
officers in 1999 were made to the Board of Directors by a Compensation Committee
consisting of Thomas L. Auth, W. Wallace McDowell, Jr. and Perry J. Lewis.

28
<PAGE>

Messrs. McDowell and Lewis are nonemployee directors of the Company. Mr. Auth is
Chairman of the Board of Directors, Chief Executive Officer and President of the
Company.

EXECUTIVE COMPENSATION PROGRAM

SUMMARY COMPENSATION TABLE

The following table sets forth the cash and non-cash compensation for
1997, 1998 and 1999 awarded to or earned by the Company's Chief Executive
Officer and the four other highest-compensated executive officers of the Company
whose salaries and bonuses exceeded $100,000 during 1999:

<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Number of
Name and ------------------- Stock Options All Other
Principal Position Year Salary Bonus Granted(2) Compensation(3)
------------------ ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Thomas L. Auth 1997 $325,000 $185,250(1) 100,000 $ 2,400
President and Chief 1998 350,000 168,000(1) 100,000 2,400
Executive Officer 1999 375,000 160,000(1) 57,500 2,400

Joe Hurst 1997(4) $116,659 $ 57,000(1) 24,000 $ 3,000
Senior Vice President 1998 185,280 81,600(1) 35,000 3,000
1999 196,667 80,000(1) 22,500 3,000

Charles E. Briskey 1997 $150,000 $ 68,400(1) 35,000 $ 2,400
Senior Vice President 1998 160,000 62,400(1) 35,000 2,400
1999 175,000 64,000(1) 22,500 2,400

Charles A. Durant 1997 $110,000 $ 12,975(1) 10,000 $ 825
Vice President, General 1998 125,000 12,500(1) 10,000 2,063
Counsel and Secretary 1999 140,000 16,000(1) 10,000 2,250

Reed G. Grothe 1997 $115,000 $ 13,375(1) 10,000 $ 1,947
Vice President, Sales of 1998 120,000 12,000(1) 8,000 1,798
Interactive Technologies 1999 125,000 12,500(1) 5,000 2,250
</TABLE>

- ------------------

(1) Represents bonuses earned for the year shown in the table and paid in
the following year.

(2) Consists of non-qualified stock options granted under the Stock
Incentive Plan.

(3) Other compensation consists of matching contributions made by the
Company on behalf of each of the named individuals under its 401(k)
profit-sharing plans. Salary deferrals into the 401(k) plans are
included in the salary column.

(4) Mr. Hurst became an employee and executive officer of the Company upon
the acquisition of CADDX by the Company on April 30, 1997. Accordingly,
the salary and bonus for 1997 represents only a partial year.

29
<PAGE>

STOCK OPTIONS

The following table sets forth information concerning individual grants
of all stock options made during the year ended December 31, 1999, to each of
the executive officers named in the Summary Compensation Table. Options
described in the table were granted under the Company's Stock Incentive Plan as
part of an overall incentive compensation program.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential Realizable
Percentage Value at Assumed
Number of of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(2)
Options Employees Exercise Expiration -----------------------
Name Granted(1) in 1999 Price Date 5% 10%
- ---- ---------- ------- ----- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Auth 57,500 29% $23.625(3) 08/17/09 $854,314 $2,165,000

Joe Hurst 22,500 11% 23.625(3) 08/17/09 334,297 847,174

Charles E. 22,500 11% 23.625(3) 08/17/09 334,297 847,174
Briskey

Charles A. 10,000 5% 23.625(3) 08/17/09 148,576 376,522
Durant

Reed G. Grothe 5,000 3% 23.625(3) 08/17/09 74,288 188,261
</TABLE>

- ------------------

(1) The options have an exercise price equal to the market price of the
Company's common stock on the date of grant. Eighty percent of the
options granted to Messrs. Auth, Hurst, and Briskey became exercisable
on December 31, 1999 based upon the achievement by the Company of
certain predetermined revenue and earnings goals. One-fifth of the
options granted to Messrs. Durant and Grothe become exercisable on the
anniversary date of the grant until they are fully vested on the fifth
such anniversary date; provided, however, that such options will become
exercisable over a three-year period rather than a five-year period if
and when the proposed merger with SLC is consummated.

(2) Represents the potential net realizable value of each grant of stock
options assuming that the market price of the underlying Common Stock
appreciates in value from its fair market value on the date of grant to
the end of the option term at the indicated annual rates. The actual
value realized, if any, on stock option exercises will be dependent
upon overall market conditions and the future performance of the
Company and its Common Stock. There is no assurance that the actual
value realized will approximate the amounts reflected in this table.

(3) Represents the fair market value of the Common Stock at the date of
grant as determined by the Board of Directors.

30
<PAGE>

The following information is furnished with respect to the exercise of
stock options during the year ended December 31, 1999, by the Company's
executive officers named in the Summary Compensation Table and the value at
December 31, 1999, of unexercised stock options held by such individuals. All
options were granted under the Company's Stock Incentive Plan.

AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised Options "In the Money" Options(2)
Shares Acquired Value ------------------------------ -----------------------------
Name Upon Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Auth
Series A Options --- $ --- 97,600 --- $2,440,000 $ ---
Series D Options --- --- 505,409 15,500 6,102,566 73,313
Series E Options --- --- 60,000 --- 810,000 ---

Joe Hurst
Series D Options --- $ --- 75,600 5,900 $ 477,750 $ 28,688

Charles E. Briskey
Series D Options --- $ --- 121,600 5,900 $1,142,875 $ 28,688
Series E Options --- --- 20,000 --- 270,000 ---

Charles A. Durant
Series C Options --- $ --- 9,800 29,700 $ 114,800 $235,950

Reed G. Grothe
Series C Options --- $ --- 10,400 24,600 $ 128,300 $224,325
</TABLE>

- -----------------

(1) These amounts represent the applicable number of shares underlying the
stock options multiplied by the result obtained by subtracting from the
fair market value of the Common Stock at the time of exercise the per
share exercise prices of the stock options.

(2) The amounts set forth represent the difference between the $30.00 per
share closing price of the Common Stock as quoted on The Nasdaq
National Market on December 31, 1999, and the exercise price of the
stock options, multiplied by the applicable number of shares underlying
the options.

EMPLOYMENT CONTRACTS

Messrs. Auth, Briskey and Durant have entered into compensation
agreements with the Company which provide that their annual base salaries will
be not less than $300,000, $140,000 and $100,000, respectively. Such
compensation agreements have no term and provide for severance pay in an amount
equal to six months' base salary if employment is terminated without cause.
These compensation agreements also provide that each executive officer is
eligible for discretionary incentive bonuses and is entitled to receive benefits
that are otherwise provided to employees and/or executives of the Company. The
compensation agreements of Mr. Briskey and Mr. Auth were revised conditioned
upon closing of the merger of SLC into ITI, as described in the proxy statement
mailed to stockholders in connection with approval of the merger. As recipients
of stock options under the Stock Incentive Plan, each of the executive officers
is also subject to certain non-compete restrictions.

31
<PAGE>

In connection with the April 30, 1997, acquisition of CADDX, Mr. Hurst
entered into a one-year employment agreement with CADDX, which provides that his
annual base salary will be $175,000 and that he will be eligible for
discretionary bonus compensation in such amounts as determined from time to time
by the Board of Directors. Subsequent to the initial one-year term of the
agreement, CADDX agreed that Mr. Hurst's annual base salary shall be not less
than $175,000 and he will be eligible for severance pay in an amount equal to
six months' base salary if employment is terminated without cause. Concurrent
with execution of his employment agreement, Mr. Hurst entered into a five-year
non-competition agreement with the Company. As a recipient of stock options
under the Stock Incentive Plan, Mr. Hurst is also subject to additional
non-compete restrictions.

32
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information about the beneficial ownership
of the common stock of ITI as of March 20, 2000, by (i) each stockholder who is
known by ITI to own beneficially more than 5% of the outstanding ITI common
stock, (ii) each director of ITI, (iii) each other person who would become a
director by virtue of the merger, (iv) each executive officer named in the
Summary Compensation Table, and (v) all ITI executive officers and directors as
a group.

<TABLE>
<CAPTION>
Name of Beneficial Amount of
Owner or Identity of Group Beneficial Ownership(1)
- --------------------------------------------------------------------------- -----------------------------
Shares Percent
------------ -----------
<S> <C> <C>
SLC Technologies, Inc.(2) 1,603,637 18.8%

Berwind Group Partners(3) 1,603,637 18.8%

MLGAL Partners, L.P.(4)(5) 1,281,159 15.0%

MLGA Fund II, L.P(4)(5) 1,281,159 15.0%

Sentry Insurance(6) 778,000 9.1%

Fleet Boston Corporation(7) 606,814 7.1%

Farallon Capital Management LLC(8) 436,100 5.1%

Thomas L. Auth 903,613 (10) 9.8%

Charles E. Briskey 148,509 (10) 1.7%

Joe Hurst 75,600 (10) *

Perry J. Lewis(9) 62,656 (10) *

W. Wallace McDowell, Jr. 61,000 (10) *

Sangwoo Ahn(9) 50,656 (10) *

Walter R. Barry, Jr. 15,000 (10) *

Charles A. Durant 16,785 (10) *

Reed G. Grothe 17,600 (10) *

All ITI executive officers and directors of ITI as a group (13 persons) 1,402,363 (10) 14.7%

C. G. Berwind, Jr. (11)(12) 0 0

Edward F. Kosnik(11)(12) 0 0

Kenneth Boyda(11) 0 0

Larry C. Karlson 0 0

Jan P. Brantjes 0 0
</TABLE>

- ---------------

* Less than 1%.

(1) Percentages of outstanding shares are based on 8,536,642 shares of ITI
common stock outstanding as of March 20, 2000. Shares of ITI common
stock subject to options granted under ITI's Long-Term Stock Incentive
Plan (1992) (the "Stock Incentive Plan") and the Nonemployee Director
Stock Option Plan (the "Director Plan") that

33
<PAGE>

currently are exercisable, or which become exercisable within 60 days,
are deemed outstanding for computing the number and percentage
ownership of the person or group holding such options but are not
deemed outstanding for computing the percentages with respect to other
persons. Except as otherwise noted, the persons named in the table and
footnotes have sole voting and investment power with respect to all
shares of ITI common stock reported as beneficially owned by them.

(2) SLC filed a Schedule 13D with the SEC on October 8, 1999 (the "SLC
Schedule 13D") reporting that, as a result of proxies granted in the
Voting Support Agreements, it may be deemed to beneficially own these
shares of ITI common stock. SLC's business address is 12345 SW Leveton
Drive, Tualatin, Oregon 97602.

(3) Pursuant to the SLC Schedule 13D, Berwind Group Partners reported that,
as the sole owner of SLC and as a result of proxies granted in the
Voting Support Agreements, it may be deemed to indirectly beneficially
own the shares of ITI common stock that may be deemed to be
beneficially owned by SLC. Berwind Group Partners' business address is
1 Belmont Avenue, Suite 401, Bala Cynwyd, Pennsylvania 19004.

(4) The business address of MLGAL Partners, L.P. and MLGA Fund II, L.P. is
Two Greenwich Plaza, Greenwich, Connecticut 06830.

(5) MLGAL Partners, L.P., controls MLGA Fund II, L.P., and thus the
1,281,159 shares of ITI common stock owned of record by MLGA Fund II,
L.P., are also shown as being owned by MLGAL Partners, L.P.

(6) On February 9, 2000, ITI received Schedule 13Gs from Sentry Insurance,
Sentry Life Insurance Company and Sentry Fund, all filing as members of
the same group (collectively, the "Sentry 13G"). The Sentry 13G reports
beneficial ownership of an aggregate of 778,000 shares of ITI common
stock. Each of these reporting entities has its principal place of
business at 1800 Northpoint Drive, Stevens Point, Wisconsin 54481. All
of the foregoing information set forth in this footnote is from the
Sentry 13G.

(7) A Schedule 13G was filed with the SEC on February 14, 2000, by Fleet
Boston Corporation, reporting beneficial ownership of 606,814 shares of
ITI common stock (the "Fleet Boston Schedule 13G"). Fleet Boston
Corporation is a parent holding company pursuant to Rule
13d-1(b)(ii)(G) under the 1934 Act. The Fleet Boston Schedule 13G
reports shares of ITI common stock acquired by Fleet Trust & Investment
Services Company, Fleet National Bank and Fleet Investment Advisors,
all subsidiaries of Fleet Boston Corporation. The business address of
Fleet Boston Corporation is One Federal Street, Boston, Massachusetts
02110. All of the foregoing information set forth in this footnote is
from the Fleet Boston Schedule 13G.

(8) A Schedule 13D was filed with the SEC on January 12, 2000, by Farallon
Capital Partners, L.P., Farallon Capital Institutional Partners, L.P.,
Farallon Capital Institutional Partners II, L.P., Farallon Capital
Institutional Partners III, L.P., Tinicum Partners, L.P. (together, the
"Partnerships"), Farallon Capital Management, L.L.C. (the "Management
Company"), Farallon Partners, L.L.C. (the General Partner of the
Partnerships), Enrique H. Boilini, David I. Cohen, Joseph F. Downes,
William F. Duhamel, Fleur E. Fairman, Jason M. Fish, Andrew B. Fremder,
Richard B. Fried, William F. Mellin, Stephen L Millham, Meridee A.
Moore, Thomas F. Steyer and Mark C. Wehrly (the "Individual Reporting
Persons") reporting beneficial ownership of an aggregate of 436,100
shares of ITI common stock (the "Farallon Schedule 13D"). The
Partnerships reported owning directly an aggregate of 256,400 shares
and each Partnership has shared voting and dispositive powers with
respect to the shares held by it. The General Partner has the power to
direct the affairs of the Partnerships, including the disposition of
the proceeds of the sale of the shares of ITI common stock. The
Management Company is an investment adviser to various accounts and has
shared voting and dispositive powers with respect to an aggregate of
179,700 shares which are held in the managed accounts. All of the
Individual Reporting Persons are managing members of the General
Partner and the Management Company (other than Fairman, who is a
managing member of only the General Partner). The Management Company,
the General Partner and the Individual Reporting Persons each disclaim
beneficial ownership of any of the shares. The address of the

34
<PAGE>

foregoing persons is c/o Farallon Capital Management, LLC., One
Maritime Plaza, Suite 1325, San Francisco California 94111. All of the
foregoing information set forth in this footnote is from the Farallon
Schedule 13D.

(9) Messrs. Ahn, Lewis, and John A. Morgan may be deemed to be affiliates
of MLGAL Partners, L.P. These individuals each disclaim beneficial
ownership of the shares directly owned by MLGAL Partners, L.P. The
business address of these individuals is MLGAL Partners, L.P., Two
Greenwich Plaza, Greenwich, Connecticut 06830.

(10) Includes options granted under the Stock Incentive Plan and the
Director Plan to purchase the following number of shares held by the
following individuals, which options are currently exercisable or will
become exercisable within 60 days of March 20, 2000: Mr. Auth
(663,009), Mr. Briskey (141,600), Mr. Hurst (75,600), Mr. McDowell
(15,000), Mr. Ahn (15,000), Mr. Lewis (15,000), Mr. Barry (15,000), Mr.
Durant (15,700), Mr. Grothe (16,400), and other executive officers as a
group, 4 persons (46,650). The business address of Mr. Auth is
Interactive Technologies, Inc., 2266 North Second Street, North St.
Paul, Minnesota 55109.

(11) Messrs. Berwind, Boyda and Kosnik may be deemed to be affiliates of
SLC. Each of these individuals disclaims beneficial ownership of shares
of ITI common stock which may be deemed to be beneficially owned by
SLC. The business address of Messrs. Berwind and Kosnik is 3000 Centre
Square West, 1500 Market Street, Philadelphia, Pennsylvania 19102. Mr.
Boyda's business address is 12345 SW Leveton Drive, Tualatin, Oregon
97062.

(12) Messrs. Berwind and Kosnik may be deemed to be affiliates of Berwind
Group Partners. Each of these individuals disclaims beneficial
ownership of shares of ITI common stock which may be deemed to be
beneficially owned by Berwind Group Partners. The business address of
Messrs. Berwind and Kosnik is 3000 Centre Square West, 1500 Market
Street, Philadelphia, Pennsylvania 19102.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Thomas L. Auth, Chairman, CEO and President of ITI, is a director and
shareholder in EH Publishing, Inc., which publishes several periodicals,
including Popular Home Automation and CE Pro, operates a web site at
electronichouse.com, and coordinates the Home Automation Trade Show. Both
Interactive Technologies, Inc., and CADDX Controls, Inc., advertise in
periodicals published by EH Publishing from time to time. Additionally,
Interactive Technologies, Inc., advertises on EH Publishing's web site and
participates in the Home Automation Trade Show. During the 12-month period
ending September 30, 1999, subsidiaries of ITI have paid EH Publishing an
aggregate of $68,819 for advertising and trade show services. All of these
transactions have been negotiated at arms' length by employees of ITI's
subsidiaries and Mr. Auth had no personal involvement. Furthermore, the board of
directors of Interactive Technologies, Inc. has approved the transactions to
date and authorized the future placement, by Interactive Technologies and its
affiliates, of advertisements in trade periodicals published by EH Publishing at
customary rates.

In 1998, ITI appointed Aon Corporation its insurance broker for all
insurance lines. Perry J. Lewis, a Director of ITI, is a director of Aon
Corporation. Charles A. Durant, Vice President, General Counsel and Secretary of
ITI, had established a business relationship with representatives from Aon
Corporation over the last several years and had retained Aon Corporation without
consulting Mr. Lewis. Aon Corporation reported to ITI that it derives
approximately $62,000 in income annually as ITI's insurance broker. The board of
directors of ITI, other than Mr. Lewis, who abstained, has approved the
transactions to date between ITI and Aon Corporation and the continued use of
Aon Corporation as an insurance broker by ITI.

35
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The financial statements filed as part of this Annual Report on
Form 10-K are described in the Index to Financial Statements appearing on page
F-1.

(b) The following Current Reports on Form 8-K were filed by the Company
during the fourth quarter ended December 31, 1999:

(1) A Current Report on Form 8-K was filed by the Company on
September 30, 1999, announcing that the Company had entered
into a definitive agreement with SLC to merge SLC into ITI.

(2) A Current Report on Form 8-K/A was filed by the Company on
October 12, 1999, to supplement certain information contained
in the Current Report on Form 8-K filed by the Company on
September 30, 1999, announcing that the Company had entered
into a definitive agreement with SLC to merge SLC into ITI.

Exhibit No. Description
----------- -----------

10.1 Letter Agreement dated March 7, 2000,
between ITI Technologies, Inc. and SLC
Technologies, Inc. extending the upset date
to April 28, 2000.

10.2 Amendment to Agreement and Plan of Merger
and Reorganization dated March 9, 2000,
between ITI Technologies, Inc. and SLC
Technologies, Inc.

23.1 Consent of PricewaterhouseCoopers LLP.

27.1 Financial Data Schedule (for electronic
filing purposes only).

The following exhibits are hereby incorporated into this Annual Report
on Form 10-K by reference to exhibits filed with the Company's Registration
Statement on Form S-1, as amended, which became effective on November 22, 1994
(the "Registration Statement"); the exhibit number assigned to each exhibit as
filed with the Registration Statement is set forth in parentheses after the
description of the exhibit:

Exhibit No. Description
----------- -----------

2.1 Stock Purchase and Sale Agreement by and among
Professional Services Industries Holding, Inc.,
Interactive Technologies Holding Corporation
("ITHC"), and the Company dated March 25, 1992.
(Exhibit 2.1)

2.2 Amendment No. 1 to Stock Purchase and Sale
Agreement dated as of April 1, 1992. (Exhibit
2.2)

2.3 Amendment No. 2 to Stock Purchase and Sale
Agreement dated as of May 11, 1992. (Exhibit
2.3)

2.4 Warranty and Indemnification Agreement by and
between the Company and Professional Services
Industries Holding, Inc. (Exhibit 2.4)

2.5 Guaranty of ADIA S.A. in favor of the Company
dated March 31, 1992. (Exhibit 2.5)

36
<PAGE>

2.6 Stockholders Agreement dated as of May 11, 1992,
by and among the Company and the investors named
therein. (Exhibit 2.6)

2.7 Stock Subscription Agreement dated as of May 11,
1992, by and among the Company and the
purchasers listed on the signature pages
thereof. (Exhibit 2.7)

2.8 Stock Purchase Agreement dated as of March 25,
1992, by and among ITHC and the individuals
listed on Exhibit A attached thereto. (Exhibit
2.8)

2.9 Shareholders' Agreement dated as of March 1,
1989, by and among ITHC and the shareholders
listed on Schedule A attached thereto. (Exhibit
2.9)

3.2 Certificate of Incorporation of the Company, as
amended, in effect on the date hereof. (Exhibit
3.1)

3.3 Bylaws of the Company in effect as of the date
hereof. (Exhibit 3.2)

4.1 Form of Common Stock Certificate. (Exhibit 4.1)

10.6 Adoption Agreement for Qualified Profit Sharing
and 401(K) Plan. (Exhibit 10.7)

10.7 Securities Purchase Agreement dated as of May
11, 1992, by and among the Company and TCW
Special Placements Fund III, Sun Life Insurance
Company, The Lincoln National Convertible
Securities Fund, Inc., TCW Capital, and The
Lincoln National Income Fund, Inc. (the
"Warrantholders"). (Exhibit 10.16)

10.8 First Amendment to Securities Purchase Agreement
dated as of June 15, 1993, among the Company and
Warrantholders. (Exhibit 10.17)

10.9 Second Amendment to Securities Purchase
Agreement dated as of December 23, 1993, among
the Company and Warrantholders. (Exhibit 10.18)

10.10 Letter Agreement dated March 15, 1993, by and
between Thomas L. Auth and the Company. (Exhibit
10.33)

10.11 Letter Agreement dated March 15, 1993, by and
between Charles E. Briskey and the Company.
(Exhibit 10.35)

10.12 Memorandum of Agreement dated August 16, 1989,
between Interactive Technologies, Inc. and
Mo-Mex Corporation. (Exhibit 10.43)

10.13 Settlement Agreement and Release between Atrix
International, Inc. and Interactive
Technologies, Inc. and License Agreement between
Atrix International, Inc. and Interactive
Technologies, Inc. (Exhibit 10.48).

The following exhibits are hereby incorporated into this Annual Report
on Form 10-K by reference to exhibits filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"); the
exhibit number assigned to each exhibit as filed with the 1996 Form 10-K is set
forth in parentheses after the description of the exhibit:

37
<PAGE>

Exhibit No. Description
----------- -----------

10.14 Strategic Supplier Agreement No. FD1106 between
Interactive Technologies, Inc. and Honeywell
Inc. dated November 20, 1996. (Exhibit 10.1)

10.15 Letter Agreement dated December 23, 1996,
between ADT Security Systems, Inc. and
Interactive Technologies, Inc. (Exhibit 10.2)

The following exhibit is hereby incorporated into this Annual Report on
Form 10-K by reference to Exhibit 4.1 to the Registration Statement on Form 8-A
filed by the Company with the Commission on December 6, 1996:

Exhibit No. Description
----------- -----------

4.2 Rights Agreement dated November 27, 1997, by and
between ITI Technologies, Inc. and Norwest Bank
Minnesota, N.A.

The following exhibit is hereby incorporated into this Annual Report on
Form 10-K by reference to Exhibit 2 to the Current Report on Form 8-K filed by
the Company with the Commission on April 30, 1997:

Exhibit No. Description
----------- -----------

10.16 Stock Purchase and Sale Agreement dated April 4,
1997, by and among ITI, CADDX and the
Shareholders.

The following exhibits are hereby incorporated into this Annual Report
on Form 10-K by reference to exhibits filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"); the
exhibit number assigned to each exhibit as filed with the 1997 Form 10-K is set
forth in parentheses after the description of the exhibit.

3.4 Certificate of Amendment of Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on
May 22, 1997. (Exhibit 3.1)

10.17 Real Estate Sales Contract dated April 30, 1997, between
Kenneth T. Lewis and CADDX-CADDI Controls, Inc. (Exhibit 10.1)

10.18 Employment Agreement dated April 30, 1997, between CADDX
Controls, Inc. and Joe Hurst. (Exhibit 10.2)

10.19 Noncompetition Agreement dated April 30, 1997, between
ITI Technologies, Inc. and Joe Hurst. (Exhibit 10.3)

10.20 Revolving Credit Agreement dated April 30, 1997, between
ITI Technologies, Inc. and Norwest Bank Minnesota, National
Association. (Exhibit 10.4)

10.21 Compatibility Agreement dated June 3, 1997, between
Prince Corporation and Interactive Technologies, Inc. (Exhibit
10.6)

10.22 Trademark License Agreement dated June 3, 1997, between
Prince Corporation and Interactive Technologies, Inc. (Exhibit
10.7)

10.23 Development and Supply Agreement between Interactive
Technologies, Inc. and Westsec, Inc. d/b/a Westar Security
Services dated June 20, 1997. (Exhibit 10.8)

38
<PAGE>

10.24 Form of Exchange Agreement used in connection with the
exchange of options issued to Nonemployee Directors under the
Company's Nonemployee Director Stock Option Plan. (Exhibit
10.9)

10.25 Form of Exchange Agreement used in connection with the
exchange of Series C Stock Options. (Exhibit 10.10)

10.26 Form of Consent to Award Modification used in connection
with the repricing of Series D and E Stock Options. (Exhibit
10.11)

The following exhibits are hereby incorporated into this Annual Report on
Form 10-K by reference to exhibits filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999; the exhibit number assigned
to each exhibit as filed with the September 30, 1999 Form 10-Q is set forth in
parentheses after the description of the exhibit:

10.27 Employment Agreement dated September 28, 1999, between
Thomas L. Auth and ITI Technologies, Inc. (Exhibit 10.1)

The following exhibits are hereby incorporated into this Annual Report on
Form 10-K by reference to exhibits filed with the Company's Current Report on
Form 8-K filed by the Company on September 30, 1999; the exhibit number assigned
to each exhibit as filed with the Current Report on Form 8-K is set forth in
parentheses after the description of the exhibit:

2.10 Agreement and Plan of Merger and Reorganization dated
September 28, 1999, between ITI Technologies, Inc. and SLC
Technologies, Inc. (Exhibit 2.1)

4.2A Amendment No. 1 to the Rights Plan dated September 28,
1999, between ITI Technologies, Inc. and Norwest Bank
Minnesota, National Association. (Exhibit 4.1A)

99.1 Joint press release issued by ITI Technologies, Inc. on
September 29, 1999. (Exhibit 99.1)

99.2 Materials used for investor presentations dated September
28, 1999. (Exhibit 99.2)

The following exhibits are hereby incorporated into this Annual Report on
Form 10-K by reference to exhibits filed with the Company's Current Report on
Form 8-K/A filed by the Company on October 12, 1999; the exhibit number assigned
to each exhibit as filed with the Current Report on Form 8-K/A is set forth in
parentheses after the description of the exhibit:

99.3 Updated materials used for investor presentations dated
September 28, 1999. (Exhibit 99.2)

(d) The following report and consolidated financial statement schedule
are filed as part of this Annual Report on Form 10-K: Schedule II -- Valuation
and Qualifying Accounts and the Report of Independent Accountants thereon.

39
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Pages
-----

Report of Independent Accountants........................................ F-2

Consolidated Statement of Operations..................................... F-3

Consolidated Balance Sheet............................................... F-4

Consolidated Statement of Cash Flows..................................... F-5

Consolidated Statements of Stockholders' Equity.......................... F-6

Notes to Consolidated Financial Statements............................... F-7-16

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
ITI Technologies, Inc.:

In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of ITI
Technologies, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of the
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
-----------------------------------------

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
March 17, 2000

F-2
<PAGE>

ITI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ...................................................... $ 121,596 $ 108,986 $ 100,999
Cost of goods sold ............................................. 64,397 58,815 53,628
Inventory purchase accounting adjustment ....................... 725
---------- ---------- ----------
Gross profit ................................................... 57,199 50,171 46,646
Operating expenses:
Marketing, general and administrative ...................... 23,858 19,405 18,421
Research and development ................................... 8,807 7,974 7,491
Patent litigation costs .................................... 4,104
Purchased research and development costs ................... 5,200
Amortization of intangible assets .......................... 1,412 1,412 1,233
---------- ---------- ----------
Operating income ............................................... 19,018 21,380 14,301
Other income (expense):
Interest, net .............................................. 1,856 805 627

Other, net ................................................. (7) 49 (122)
---------- ---------- ----------
Income before income tax expense ............................... 20,867 22,234 14,806
Income tax expense ............................................. 7,515 8,004 7,202
---------- ---------- ----------
Net income ..................................................... $ 13,352 $ 14,230 $ 7,604
========== ========== ==========

Per share amounts:
Basic ...................................................... $ 1.58 $ 1.68 $ .91
Weighted average common shares outstanding - basic ......... 8,453 8,461 8,394

Diluted .................................................... $ 1.52 $ 1.61 $ .87
Weighted average common and common equivalent
shares outstanding - diluted ............................. 8,803 8,860 8,705
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

F-3
<PAGE>

ITI TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 9,741 $ 5,594
Accounts receivable ......................................................... 20,038 19,037
Notes receivable, current portion ........................................... 6,897 1,096
Inventories ................................................................. 23,887 25,201
Deferred income taxes ....................................................... 1,950 1,223
Other current assets ........................................................ 1,580 1,738
---------- ----------
Total current assets .................................................... 64,093 53,889

Notes receivable, net of current portion ........................................ 12,673 3,948
Property and equipment .......................................................... 13,108 10,647
Excess of cost over net assets acquired ......................................... 26,772 27,576
Other intangible assets ......................................................... 15,464 19,897
---------- ----------
Total assets ............................................................ $ 132,110 $ 115,957
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable ............................................................ $ 5,652 $ 6,874
Accrued wages ............................................................... 2,104 2,045
Income taxes payable ........................................................ 2,420
Other accrued expenses ...................................................... 1,783 1,955
---------- ----------
Total current liabilities ............................................... 11,959 10,874
Income taxes .................................................................... 5,745 7,676
---------- ----------
Total liabilities ....................................................... 17,704 18,550
---------- ----------

Commitments and contingencies

Stockholders' equity:
Common stock ($.01 par value; 30,000 shares authorized; 9,489 shares
issued, 8,532 shares outstanding in 1999; 9,304 shares issued, 8,347
shares outstanding in 1998) .............................................. 95 93
Additional paid-in capital .................................................. 80,013 76,368
Retained earnings ........................................................... 49,677 36,325
Treasury stock, at cost (957 shares in 1999 and 1998) ....................... (15,379) (15,379)
---------- ----------
Total stockholders' equity .............................................. 114,406 97,407
---------- ----------
Total liabilities and stockholders' equity .............................. $ 132,110 $ 115,957
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

F-4
<PAGE>

ITI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31

(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:

Net income .......................................... $ 13,352 $ 14,230 $ 7,604
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangible assets ................ 1,572 1,518 1,329
Depreciation and amortization .................... 2,629 2,258 1,802
Provision for doubtful accounts .................. 1,474 399 657
Patent litigation costs .......................... 4,104
Inventory purchase accounting adjustment ......... 725
Purchased research and development costs ......... 5,200
Deferred income taxes ............................ (2,406) 619 250
Changes in operating assets and liabilities:
Accounts receivable ......................... (2,475) (4,926) 1,603
Inventories ................................. 1,314 (3,239) (2,729)
Financing notes receivable .................. (12,906) (2,762) (737)
Other current assets ........................ (834) 65 1,237
Accounts payable ............................ (1,222) 1,766 1,370
Accrued wages and other accrued expenses .... (113) 113 490
Current income taxes payable/receivable ..... 3,412 (512) (896)
Other liabilities ........................... (252) (129) 100
--------- --------- ---------
Net cash provided by operating activities ........... 7,649 9,400 18,005
--------- --------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment ............... (5,090) (3,080) (2,790)
Additions to other intangible assets .............. (439) (1,777) (2,004)
Issuance of notes receivable ...................... (1,620) (263) (974)
Acquisitions of businesses, net of cash acquired .. (20,522)
--------- --------- ---------
Net cash used in investing activities ............. (7,149) (5,120) (26,290)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from revolving credit agreement .......... 6,310
Payments of revolving credit agreement ............ (6,310)
Proceeds from exercise of employee stock options .. 3,647 1,794 2,166
Payments for treasury stock ....................... (6,318) (1,395)
--------- --------- ---------
Net cash provided by (used in) financing activities 3,647 (4,524) 771
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 4,147 (244) (7,514)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR ........................................... 5,594 5,838 13,352
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............ $ 9,741 $ 5,594 $ 5,838
========= ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

F-5
<PAGE>

ITI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
------------ Paid-in Retained -------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ....... 9,036 $ 90 $ 72,411 $ 14,491 (622) $ (7,666) $ 79,326

Options exercised, including tax
benefits of $957 ................. 154 2 2,164 2,166
Purchase of treasury stock ......... (90) (1,395) (1,395)
Net and comprehensive income ....... 7,604 7,604
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 ....... 9,190 92 74,575 22,095 (712) (9,061) 87,701

Options exercised, including tax
benefits of $813 ................. 114 1 1,793 1,794
Purchase of treasury stock ......... (245) (6,318) (6,318)
Net and comprehensive income ....... 14,230 14,230
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1998 ....... 9,304 93 76,368 36,325 (957) (15,379) 97,407

Options exercised, including
tax benefit of $1,052 ............ 185 2 3,645 3,647
Net and comprehensive income ....... 13,352 13,352
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 ....... 9,489 $ 95 $ 80,013 $ 49,677 (957) $(15,379) $114,406
======== ======== ======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

F-6
<PAGE>

ITI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS
ITI Technologies, Inc. and its wholly owned subsidiaries (the
"Company"), operating in one business segment, designs, manufactures and markets
electronic security products and access control systems for the residential and
commercial marketplace. The Company also has an ongoing research and development
program which focuses its efforts on developing new and improved security
systems at lower costs and on utilizing its technology base to develop products
for related markets. The Company's products are sold through various channels,
including a direct sales force to independent dealers and through regional,
national and international distributors. In addition, the Company manufactures
products on a private label basis for large security system installation
companies. These customers are located primarily throughout North America,
Europe and Australia.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform with 1999 presentation. These reclassifications had no
impact on previously reported net income or stockholders' equity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS
Cash equivalents include short-term investments with original
maturities of three months or less. The Company's cash and cash equivalents are
concentrated primarily in one financial institution.

INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out method.

NOTES RECEIVABLE - DEALER FINANCING
The Company provides extended payment terms on product sales and other
financing to qualified dealers in the form of notes receivable. This dealer
financing is generally accomplished through the exchange of the dealer customer
trade account receivable for a secured note receivable. These notes receivable
are secured by a perfected security interest in the dealers' monitoring
contracts that have value in excess of the underlying note receivable, as well
as other collateral considerations. All notes are issued at market interest
rates adjusted for credit and credit enhancements with varied repayment terms of
between 12 and 72 months. The company accrues interest monthly and periodically
reviews the carrying value of these notes receivable for non-collectibility and
establishes appropriate allowances when necessary. Activity that relates to
loans to dealers that finance the cost of equipment are treated as cash flows
from operations in the accompanying consolidated statement of cash flows.
Activity related to loans to dealers to purchase account portfolios in an effort
to expand their business and other costs of the dealer are treated as investing
activities in the accompanying consolidated statement of cash flows.

F-7
<PAGE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets, ranging from three to
forty years. The costs and related accumulated depreciation and amortization on
asset disposals are removed from the accounts and any gain or loss is included
in operations.

INTANGIBLE ASSETS
The excess of acquisition cost over amounts assigned to the net
identifiable assets acquired in the Company's various acquisitions are being
amortized on a straight-line basis over forty years. Total accumulated
amortization at December 31, 1999 and 1998 was $5,418,000 and $4,614,000,
respectively.

Other identifiable intangible assets include value assigned to existing
technology, trademarks, trade names and customer lists acquired, deferred
financing costs, patents, including litigation cost associated with defending a
patent, and other intangibles. Value assigned to trademarks purchased are
amortized on a straight-line basis over an estimated useful life of forty years.
Customer lists are amortized over their estimated useful lives, which range from
ten to fifteen years. Patents and other intangibles are carried at cost less
accumulated amortization calculated on a straight-line basis over their
estimated useful lives, which range from eighteen months to twenty years.

The Company periodically evaluates the carrying value its long lived
assets based upon current and anticipated undiscounted cash flows.

INCOME TAXES
Deferred income taxes result from temporary differences between
financial reporting and income tax reporting based on enacted rates in effect
for the periods in which these differences are expected to reverse. Income tax
expense is the tax payable for the current period plus the change during the
period in deferred tax assets and liabilities.

REVENUE RECOGNITION
Substantially all of the Company's revenues relate to product sales.
Revenues from all product sales are recognized at the date of product shipment.
Revenues related to product sales that are financed under the Company's dealer
financing program are recognized at the date of product shipment because (i)
delivery has occurred and title has transferred to the dealer customer, (ii)
collectibility of the related notes receivable are reasonably assured through a
security interest in the underlying monitoring contracts and other credit
enhancements and (iii) the related selling price is fixed and determinable at
the time of shipment based upon the invoice price. The Company warrants its
products against defects and design, materials and workmanship, generally for
two years. Estimated warranty costs are provided for at the time of the related
sales.

EARNINGS PER SHARE
The Company computes earnings per share in accordance with SFAS No. 128
"Earnings Per Share." Under the provisions of SFAS No. 128, basic earnings per
share is computed by dividing net income for the period by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing net income for the period by the weighted average
number of common and common equivalent shares outstanding during the period.

COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity during a period
from nonowner sources. To date, the Company has not had any transactions that
are required to be reported as comprehensive income, other than net income.

F-8
<PAGE>

3. MERGERS AND ACQUISITIONS

On September 28, 1999, the Company entered into a definitive agreement
to merge with SLC Technologies, Inc. ("SLC"). SLC, headquartered in Portland,
Oregon, is a global integrated communications technology company with products
for commercial security, fire protection, CCTV, electronic access control and
fiber optic communications systems.

The transaction, which will be treated as a purchase of the Company by
SLC for accounting purposes, is structured as a stock-for-stock merger of SLC
into the Company, with the Company issuing approximately 15.2 million shares to
SLC. In addition, the Company's shareholders will have the right to elect to
receive from the newly merged company $36.50 in cash at closing for each share
of the Company's common stock, subject to the limitation that no more than 50%
of the total number of shares of the Company's common stock issued and
outstanding immediately prior to the closing be exchanged for cash. As a result
of the transaction, SLC shareholders will have an approximate 63.5% ownership
position in the new company on an equivalent share basis calculated under the
treasury stock method without giving effect to the cash election. Assuming that
50% of the Company's outstanding common stock outstanding immediately prior to
the closing is exchanged for cash, SLC shareholder's percentage of ownership
would increase to approximately 78%. The merger has been approved by the Board
of Directors of both companies and is subject to approval by the Company's
shareholders, approval by regulatory authorities and other customary closing
conditions.

On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0 million in cash (the
"Acquisition"). In conjunction with the Acquisition, the Company also purchased
from the majority shareholder of CADDX the manufacturing facility leased by
CADDX for $530,000. Immediately following the Acquisition, the corporate name
was changed to CADDX Controls, Inc. CADDX, located in Gladewater, Texas,
designs, manufactures and markets hardwire electronic security systems in the
United States and certain international locations.

The Acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have been
included in these financial statements from the effective date, April 30, 1997.
The Acquisition cost has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the Acquisition date, including
$4.0 million to net current assets, $1.2 million to property and equipment,
$1.25 million to customer lists (principally related to CADDX customers outside
the United States), $2.1 million to net long-term deferred tax liabilities,
$3.75 million to trade names and $5.2 million to technology under development,
leaving a $5.7 million excess of cash paid (including transaction costs) over
net assets acquired. In May 1997, the Company made a $5.2 million non-recurring
charge to operations for the value assigned to technology in process at the time
of the Acquisition. The product was introduced in the last half of 1997 and has
been commercially successful. Also, subsequent to the Acquisition, the Company
included in cost of goods sold, in the second quarter of 1997, a $725,000
non-recurring purchase accounting adjustment which resulted from the sale of
inventory which had been written-up to reflect estimated selling price less the
sum of estimated costs of completion and sale at the time of the Acquisition.

F-9
<PAGE>

4. SUPPLEMENTAL FINANCIAL STATEMENT DATA

BALANCE SHEET DATA
The following supplemental financial statement data is as of December
31 (in thousands).

1999 1998
---- ----
Accounts receivable:
Accounts receivable ..................... $ 21,033 $ 20,182

Allowance for doubtful accounts ......... (995) (1,145)
-------- --------
Total ................................. $ 20,038 $ 19,037
======== ========
Inventories:
Raw materials ........................... $ 10,941 $ 12,600
Allowance for obsolescence .............. (1,435) (1,360)
-------- --------
9,506 11,240
Work-in-process ......................... 6,072 5,615
Finished goods .......................... 8,309 8,346
-------- --------
Total ................................. $ 23,887 $ 25,201
======== ========
Property and equipment:
Machinery and equipment ................. $ 15,142 $ 12,433
Furniture and fixtures .................. 5,419 4,545
Land, building and improvements ......... 3,292 1,786
-------- --------
23,853 18,764
Accumulated depreciation and amortization (10,745) (8,117)
-------- --------
Total ................................. $ 13,108 $ 10,647
======== ========
Other intangible assets:
Trademarks and trade names .............. $ 13,829 $ 13,829
Technology and patents .................. 1,671 5,336
Customer lists .......................... 3,007 3,007
Other ................................... 626 626
-------- --------
19,133 22,798
Accumulated amortization ................ (3,669) (2,901)
-------- --------
Total ................................. $ 15,464 $ 19,897
======== ========
Other accrued expenses:
Warranty ................................ $ 550 $ 650
Professional fees ....................... 404 432
Other ................................... 829 873
-------- --------
Total ................................. $ 1,783 $ 1,955
======== ========
Income taxes:
Deferred ................................ $ 5,348 $ 7,027
Other ................................... 397 649
-------- --------
Total ................................. $ 5,745 $ 7,676
======== ========

SIGNIFICANT CUSTOMER AND EXPORT SALES
During the year ended December 31, 1997, ADT Security Systems, Inc.
accounted for 25% of consolidated net sales. No one customer exceeded 10% of
consolidated sales or accounts receivable for the years ended December 31, 1999
or 1998.

Export sales, primarily to Canada, Europe and Australia, accounted for
20.1%, 18.3% and 13.9% of consolidated net sales for the years ended December
31, 1999, 1998 and 1997, respectively.

F-10
<PAGE>

4. SUPPLEMENTAL FINANCIAL STATEMENT DATA (CONTINUED)

EARNINGS PER SHARE
The Company calculated basic and dilutive earnings per share as follows
for the years ended December 31 (in thousands, except per share data):

1999 1998 1997
---- ---- ----
Net income $13,352 $14,230 $ 7,604
======= ======= =======
Weighted average shares outstanding:
Basic (actual shares outstanding) 8,453 8,461 8,394
Effect of dilutive options 350 399 311
------- ------- -------
Diluted 8,803 8,860 8,705
======= ======= =======
Per share amounts:
Basic $ 1.58 $ 1.68 $ .91
Diluted $ 1.52 $ 1.61 $ .87

The only dilutive effect on per share earnings results from the assumed
exercise of stock options outstanding under the Company's Stock Incentive Plan.
Various options to purchase shares of the Company's common stock (the "Common
Stock") were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the Common Stock. These options expire on various dates through 2009. The
weighted average number of options excluded in the computation of diluted
earnings per share and their associated exercise prices were as follows for the
years ended December 31 (in thousands, except per share data):

1999 1998 1997
---- ---- ----
Weighted average options excluded 404 265 383
Exercise price range:
Low $ 25.75 $ 26.75 $ 16.50
High $ 30.75 $ 30.75 $ 33.50
======= ======= =======

5. INCOME TAXES

Income tax expense consisted of the following for the year ended
December 31 (in thousands):

1999 1998 1997
---- ---- ----
Current:
Federal .................................. $ 9,083 $ 6,697 $ 6,443
State .................................... 838 698 509
Deferred ................................... (2,406) 619 250
------- ------- -------
$ 7,515 $ 8,004 $ 7,202
======= ======= =======

The Company paid taxes of $6,542,000, $7,251,000 and $5,163,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.

The differences between the income tax expense and income taxes
computed using the statutory federal income tax rate were as follows for the
year ended December 31 (in thousands):

1999 1998 1997
---- ---- ----
Amount using the statutory federal tax rate .. $ 7,303 $ 7,782 $ 5,182
Purchased research and development costs ..... 1,820
Amortization of excess of cost over net
assets acquired ............................ 281 281 265
State income taxes, net of federal benefit ... 545 448 331
Research and development
tax credits ................................ (220) (249) (224)
Foreign sales corporation benefit ............ (307) (279) (208)
Other, net ................................... (87) 19 36
------- ------- -------
$ 7,515 $ 8,004 $ 7,202
======= ======= =======

F-11
<PAGE>

5. INCOME TAXES (CONTINUED)

A summary of the components of deferred tax assets (liabilities) is as
follows for the year ended December 31 (in thousands):

1999 1998
---- ----
Current deferred tax asset:
Accrued expenses and valuation reserves not
yet deducted for tax purposes .................. $ 1,950 $ 1,223
======= =======

Long-term deferred tax liability:
Depreciation ..................................... $ (681) $ (632)
Patent defense costs ............................. (344) (1,744)
Other intangible assets .......................... (4,323) (4,651)
------- -------
($5,348) ($7,027)
======= =======

6. CREDIT FACILITY

On April 30, 1997, the Company entered into an unsecured $15.0 million
bank revolving credit facility. The facility provides for interest calculated,
at the Company's option, at LIBOR plus 1.0% or the commercial bank's base rate
less 1.25%. In addition, the facility requires a commitment fee of 0.1% per
annum on the unused portion of the facility. The agreement allows for payment of
annual dividends equal to 25% of the Company's net income for the immediately
preceding fiscal year and requires the maintenance of specified ratios and
minimum net worth. No borrowings were outstanding any time during 1999 or 1998.

The Company paid $20,000 of interest, primarily commitment fee related,
for the years ended December 31, 1999 and 1998, and $24,000 for the year ended
December 31, 1997.

7. COMMITMENTS

The Company leases certain property and equipment under various
non-cancelable operating leases which expire at various periods through 2001.
Total rent expense of the Company was $749,000, $709,000 and $676,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. At December 31,
1999, future minimum rentals required under non-cancelable operating leases are
as follows (in thousands):

2000............................................ $ 728
2001............................................ 141
2002............................................ 101

8. LITIGATION

F-12
<PAGE>

8. LITIGATION (CONTINUED)

Pittway had announced that in 1997 it had "introduced an improved
method of enrolling transmitters in its VISTA series of control panels." Pittway
calls this new method "QED." While the Company has maintained that Pittway's QED
products also infringe the Company's LEARN MODE patent, the judge would not
allow the Company to add Pittway's QED products to the action commenced in
August of 1995. Accordingly, the Company commenced a second patent infringement
lawsuit against Pittway and Ademco Distribution, Inc. on August 3, 1998, for
infringement of the Company's Learn Mode patent. In light of the outcome in the
first infringement suit against Pittway, the Company and Pittway jointly
stipulated on December 17, 1999, that the second suit be dismissed with
prejudice.

9. PROFIT SHARING PLANS

The Company contributes to certain defined contribution plans (the
"Plans") which qualify under Section 401(k) of the Internal Revenue Code.
Employees who meet minimum age and service requirements are eligible to
participate in the Plans. The Company's contributions to the Plans were
$234,000, $217,000 and $171,000 for the years ended December 31, 1999, 1998 and
1997, respectively. In addition, the Company recorded expenses related to the
Plans of $22,000, $42,000 and $29,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

10. STOCKHOLDERS' EQUITY

TREASURY SHARES
On June 18, 1998, the Board of Directors of the Company canceled the
stock repurchase program authorized on November 22, 1996 and authorized the
repurchase, from time to time, of up to 1,000,000 shares of the Company's common
stock in the open market or in private transactions. Total repurchases under
this authorization of 245,200 shares occurred during the third quarter of 1998.

On November 22, 1996, the Board of Directors authorized, subject to
market conditions and other factors, the purchase of up to 900,000 shares of the
Company's Common Stock. The Company purchased 90,000 and 621,500 shares under
this authorization in 1997 and 1996, respectively.

STOCKHOLDER RIGHTS PLAN
In November 1996, the Company's Board of Directors declared a dividend
distribution of one common share purchase right (a "Right") for each outstanding
share of Common Stock payable to stockholders of record at the close of business
on December 9, 1996. Each Right entitles the holder to purchase from the Company
one-half of a share of Common Stock, or a combination of securities and assets
of equivalent value, subject to adjustment, at a purchase price of $25.00. The
Rights will only become exercisable on the tenth business day following (i) the
public announcement that a person or group has acquired 20% or more of the
Company's Common Stock; or (ii) the public announcement by a person or group of
a tender or exchange offer that would result in ownership of 20% or more of the
Company's Common Stock, unless such offer has been determined by the Company's
Board, prior to the purchase of shares under such tender or exchange offer, to
be fair to the Company's stockholders and in the best interests of the Company
and its stockholders; or (iii) a determination by the Company's Board that a
person is an Adverse Person and that such Person, alone or together with its
affiliates, has become the beneficial owner of at least 15% of the Company's
Common Stock. Prior to becoming exercisable, the Rights are redeemable at the
discretion of the Company's Board and expire at the close of business on
November 26, 2006. The proposed merger with SLC has been approved by the
Company's Board.

F-13
<PAGE>

10. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK INCENTIVE PLAN
The Company's Long-Term Stock Incentive Plan (1992) (the "Stock Plan")
provides for grants of up to 2,500,000 stock options, shares of restricted
stock, restricted stock units and stock appreciation rights to officers,
directors and other key employees. Options granted that are canceled or expire
are available for grant in future periods. Stock option activity was as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE FAIR VALUE
- ------- --------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996......... 1,191,159 $18.00

Granted.................................. 366,000 14.26 $5.94
Granted under exchange and
repricing agreements................... 653,300 16.47 6.69
Canceled................................. (677,650) 25.22
Exercised................................ (153,782) 8.11
---------
Outstanding at December 31, 1997......... 1,379,027 13.84

Granted.................................. 386,000 30.48 12.61
Exercised................................ (114,630) 9.29
Canceled................................. (30,050) 16.55
---------
Outstanding at December 31, 1998......... 1,620,347 18.08

Granted.................................. 197,240 23.75 8.92
Exercised................................ (184,268) 14.43
Canceled................................. (19,900) 25.62
---------
Outstanding at December 31, 1999......... 1,613,419 19.09
=========
</TABLE>

The following table summarizes information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ---------------- -------------- ----------- --------------
RANGE OF
EXERCISE PRICES
- ---------------
<S> <C> <C> <C> <C> <C>
$5.00 to $7.50.......... 203,709 3.2 years $ 5.31 203,709 $ 5.31
$14.125 to $23.75....... 1,002,810 7.4 years 17.40 725,748 16.91
$25.75 to $32.25........ 406,900 7.8 years 30.18 267,600 30.02
--------- ---------
$5.00 to $32.25......... 1,613,419 7.0 years 19.09 1,197,057 17.87
========= =========
</TABLE>

Options vest over periods up to seven years from the date of grant and
expire at various periods up to August 2009. All options were granted with an
exercise price equal to or exceeding the fair value of the Company's Common
Stock at the date of grant. Upon termination of employment, options not
exercisable expire. In connection with the merger with SLC, substantially all
unvested options would vest upon consummation of the merger, excluding 94,740 of
Series C Stock Options granted in 1999, which would vest over a three year
period.

F-14
<PAGE>

10. STOCKHOLDERS' EQUITY (CONTINUED)

On May 22, 1997, the Company canceled all stock options awarded to date
to the Company's Board of Directors having an exercise price of $25.88 and
replaced such options with options issued under the Company's Stock Plan having
an exercise price of $16.00, the market price of the Common Stock on that date.
All other terms and conditions contained in such options remained unchanged.

On May 5, 1997, the Company repriced certain Series D and E Stock
Options that had an exercise price of $22.56 or higher to provide for a new
exercise price of $16.50, the market price of the Common Stock on that date. All
other terms and conditions contained in such options remained unchanged.

On January 28, 1997, the Company offered an exchange agreement to all
current employees previously awarded certain Series C Stock Options during the
period beginning April 18, 1995 and ending December 31, 1996. The agreement
offered such employees the ability to exchange their unexercised Series C Stock
Options issued to them during the indicated period for new options in the
identical number but with a five-year vesting period commencing January 28, 1997
and a new exercise price of $16.50, the market price of the Common Stock on that
date.

ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company utilizes the intrinsic value method to account for employee
stock option grants. Had compensation expense for the Stock Plan been determined
consistent with the fair-value-based method of SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below.

The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with weighted average assumptions of no
dividend yield; expected volatility of 37.2%, 33.1% and 30.7%; expected option
holding periods of 4.0, 5.6 and 5.3 years; and risk-free interest rates of
5.97%, 5.66% and 6.81% for 1999, 1998 and 1997, respectively.

1999 1998 1997
---- ---- ----
Net income (in thousands) As Reported $13,352 $14,230 $7,604
Pro forma 11,788 12,966 6,929
Basic earnings per share As Reported $ 1.58 $ 1.68 $ .91
Pro forma 1.39 1.53 .83
Diluted earnings per share As Reported $ 1.52 $ 1.61 $ .87
Pro forma 1.35 1.47 .80

The pro forma information above only includes stock options granted
subsequent to December 31, 1994. Pro forma compensation expense under the
fair-value-based method may increase over the next few years as additional stock
option grants are considered.

F-15
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
ITI Technologies, Inc.:

Our report on the consolidated financial statements of ITI
Technologies, Inc. is included on page F-2 of this Annual Report on Form 10-K.
In connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed on page S-2 of this Annual
Report on Form 10-K.

In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

/s/ PricewaterhouseCoopers LLP
------------------------------------
PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
March 17, 2000

S-1
<PAGE>

ITI TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
BALANCE
AT BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
- ------------------------------------ --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts 1997 $ 900,000 $ 657,000 $ 512,000 $1,045,000
1998 1,045,000 399,201 299,201 1,145,000
1999 1,145,000 1,473,739 1,623,739 995,000

Allowance for Notes Receivable 1997 $ 75,000 $ 35,000 --- $ 110,000
1998 110,000 43,460 $ 53,460 100,000
1999 100,000 105,000 --- 205,000

Allowance for Inventory Obsolescence 1997 $1,400,000 $ 388,000 $ 128,000 $1,660,000
1998 1,660,000 39,500 339,500 1,360,000
1999 1,360,000 75,000 --- 1,435,000
</TABLE>

S-2
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ITI TECHNOLOGIES, INC.

By: /s/ Thomas L. Auth
--------------------------------------------
Thomas L. Auth
ITS: CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the registrant
on the dates and in the capacities indicated.

NAME TITLE DATE
---- ----- ----

Chairman, President, Chief
/s/ Thomas L. Auth Executive Officer and Director March 29, 2000
- ----------------------------- (principal executive officer)

/s/ W. Wallace McDowell, Jr. Director March 29, 2000
- -----------------------------

/s/ Joe Hurst Director March 29, 2000
- -----------------------------

/s/ Perry J. Lewis Director March 29, 2000
- -----------------------------

/s/ Sangwoo Ahn Director March 29, 2000
- -----------------------------

/s/ Walter R. Barry, Jr. Director March 29, 2000
- -----------------------------

Vice President, Finance
/s/ Jack A. Reichert (principal financial and March 29, 2000
- ----------------------------- accounting officer)

S-3
<PAGE>

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------

10.1 Letter Agreement dated March 7, 2000, between
ITI Technologies, Inc. and SLC Technologies, Inc. extending
the upset date to April 28, 2000.

10.2 Amendment to Agreement and Plan of Merger and Reorganization
dated March 9, 2000, between ITI Technologies, Inc. and
SLC Technologies, Inc.

23.1 Consent of PricewaterhouseCoopers LLP

27.1 Financial Data Schedule (for electronic filing purposes only)

EXHIBIT 10.1

March 7, 2000

(VIA FEDERAL EXPRESS & TELECOPY)
ITI Technologies, Inc.
2266 North Second Street
North St. Paul, MN 55109

Attention: Thomas L. Auth
President and Chief Executive Officer

Re: AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BETWEEN ITI TECHNOLOGIES, INC. AND SLC TECHNOLOGIES,
INC. DATED AS OF SEPTEMBER 28, 1999 (THE "MERGER
AGREEMENT")
----------------------------------------------------

Dear Mr. Auth:

Pursuant to Section 7.1(b) of the Merger Agreement, SLC Technologies,
Inc. may extend the Upset Date (as defined in the Merger Agreement) for an
additional one-month period on not more than two occasions by delivering written
notice to ITI Technologies, Inc. not less than three days prior to the Upset
Date. The initial Upset Date is March 28, 2000. SLC Technologies, Inc. hereby
gives you notice pursuant to Section 7.1(b) of the Merger Agreement that we are
extending the Upset Date by one additional month, and the new Upset Date is
April 28, 2000. If you have any questions regarding the above, please contact
the undersigned at (503) 691-7243.

Sincerely,

SLC TECHNOLOGIES, INC.

By: /s/ Kenneth L. Boyda
-------------------------------------
Name: Kenneth L. Boyda
Title: Chief Executive Officer

/svn
cc: Charles A. Durant, Esquire, Vice President and General Counsel
(VIA FEDERAL EXPRESS & TELECOPY)
William B. Payne, Esquire (VIA FEDERAL EXPRESS & TELECOPY)

EXHIBIT 10.2

AMENDMENT TO AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION

THIS AMENDMENT (the "Amendment") to the Agreement and Plan of Merger
and Reorganization (the "Merger Agreement"), dated as of September 28, 1999, by
and between ITI Technologies, Inc., a Delaware corporation ("ITI"), and SLC
Technologies, Inc., a Delaware corporation ("SLC"), is entered into as of March
9, 2000.

WHEREAS, pursuant to the Merger Agreement, SLC shall be merged with and
into ITI (the "Merger") upon the terms and subject to the conditions set forth
therein; and

WHEREAS, SLC and ITI desire to amend and restate the cash election
procedures contained in the Merger Agreement.

NOW, THEREFORE, the parties hereby agree to amend the Merger Agreement
as follows:

Section 1.6 of the Merger Agreement is deleted in its entirety and
replaced as follows:

"Section 1.6 Cash Election Procedures.

(a) Subject to Section 1.6(b), each record holder of ITI Common Stock at
the close of business on the business day immediately preceding the ITI
Stockholder Meeting (as defined in Section 5.1) will be entitled to
elect to receive cash for all or some of the shares of ITI Common Stock
("Cash Election Shares") held by such record holder. All such elections
(each an "Election") shall be made on a form designated for that
purpose by ITI and reasonably acceptable to SLC (an "Election Form")
and in accordance with all applicable laws. Any shares of ITI Common
Stock with respect to which the record holder thereof shall not, as of
the Election Deadline (as defined below), have properly submitted to
the Exchange Agent (as defined below) a properly completed Election
Form shall be deemed not to have elected to receive cash pursuant to
Section 1.5(b) and this Section 1.6. A record holder acting in
different capacities or acting on behalf of other persons in any way
shall be entitled to submit an Election Form for each capacity in which
such record holder so acts with respect to each person for which it so
acts. The exchange agent (the "Exchange Agent") shall be Norwest Bank,
N.A., or other reputable bank or trust company jointly selected by ITI
and SLC.

(b) At the Effective Time or three business days after the Election
Deadline, whichever is later, ITI shall cause the Exchange Agent to
effect the conversions among the holders of ITI Common Stock of rights
to receive the Per Share Cash Consideration in the Merger as follows:
If the aggregate number of Cash Election Shares properly elected
represents more than 50% of the number of shares of ITI Common Stock
issued and outstanding immediately prior to the Effective Time (on the
basis of Election Forms received by the Election Deadline), then the
Exchange Agent shall reduce (pro rata according to each holder's total
number of Cash Election Shares of those holders who made an Election),
rounded to the nearest whole share, a sufficient number of Cash
Election Shares such that the total number of Cash Election Shares
represents, as closely as practicable, 50% of the number of shares of
ITI Common Stock issued and outstanding immediately prior to the
Effective Time.

(c) Not later than the 20th business day prior to the date of the ITI
Stockholder Meeting, or such other date as ITI and SLC may agree in
writing, ITI shall mail an Election Form to each person that was a
holder of record of ITI Common Stock at that time. To be effective, an
Election Form

<PAGE>

must be properly completed, signed and actually received by the
Exchange Agent not later than 5:00 p.m. prevailing Central Time, on the
business day immediately preceding the ITI Stockholder Meeting (the
"Election Deadline") and accompanied by the certificates representing
all the shares of ITI Common Stock ("ITI Certificates") as to which the
Election is being made (or an appropriate guarantee of delivery by an
eligible organization or provision for lost, stolen, misplaced or
destroyed certificates acceptable to the Exchange Agent). The Election
Form (which shall specify that delivery shall be effected and the risk
of loss and title to the ITI Certificates (and the payment right
represented by such certificates) shall pass only upon proper delivery
of such ITI Certificates to the Exchange Agent) will advise the holders
of ITI Certificates of the procedure for surrendering to the Exchange
Agent such certificates in exchange for the Per Share Cash
Consideration. ITI shall have reasonable discretion, which it may
delegate in whole or in part to the Exchange Agent, to determine
whether Election Forms have been properly completed, signed and timely
submitted or to disregard defects in Election Forms; such decisions of
ITI (or of the Exchange Agent) shall be conclusive and binding. ITI
shall consult with SLC on any significant issues regarding any Election
Form. None of SLC, ITI or the Exchange Agent shall be under any
obligation to notify any person of any defect in an Election Form
submitted to the Exchange Agent. The Exchange Agent shall also make,
and ITI shall verify, all computations contemplated by this Section
1.6, and all such computations shall be conclusive and binding on the
holders or former holders of ITI Common Stock, absent manifest error.
The Exchange Agent shall promptly provide ITI and SLC with a copy of
the completed computation. Shares of ITI Common Stock covered by an
Election Form which is not effective shall be treated as if no Election
has been made with respect to such shares of ITI Common Stock. Once an
Election is made it may not be revoked unless such revocation has been
communicated in writing to the Exchange Agent prior to the Election
Deadline. The Exchange Agent shall cause to be properly reissued ITI
Certificates representing ITI Common Stock as to which the Election is
not applicable."

IN WITNESS WHEREOF, ITI and SLC have caused this Agreement to be signed
by their respective officers thereunto duly authorized all as of this 9th day of
March, 2000.

ITI TECHNOLOGIES, INC.

By /s/ Thomas L. Auth
------------------------------------
Thomas L. Auth
Chief Executive Officer and President

SLC TECHNOLOGIES, INC.

By /s/ Kenneth L. Boyda
------------------------------------
Kenneth L. Boyda
Chief Executive Officer and President

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 10549

Commissioners:

We consent to the incorporation by reference in the Registration Statements of
ITI Technologies, Inc. on Form S-8 (Registration Nos. 33-89826, 333-08943,
333-08945, 333-23751 and 333-58257), of our report dated March 17, 2000,
relating to the consolidated financial statements which appears in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report dated March 17, 2000, relating to the financial statement schedule, which
appears in this Form 10-K.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 29, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,741
<SECURITIES> 0
<RECEIVABLES> 20,038
<ALLOWANCES> 995
<INVENTORY> 23,887
<CURRENT-ASSETS> 64,093
<PP&E> 13,108
<DEPRECIATION> 10,745
<TOTAL-ASSETS> 132,110
<CURRENT-LIABILITIES> 11,959
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 114,311
<TOTAL-LIABILITY-AND-EQUITY> 132,110
<SALES> 121,596
<TOTAL-REVENUES> 121,596
<CGS> 64,397
<TOTAL-COSTS> 64,397
<OTHER-EXPENSES> 38,181
<LOSS-PROVISION> 1,474
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 20,867
<INCOME-TAX> 7,515
<INCOME-CONTINUING> 13,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,352
<EPS-BASIC> 1.58
<EPS-DILUTED> 1.52

</TABLE>