Document:

EXHIBIT 4.21

                        EXFO ELECTRO-OPTICAL ENGINEERING

                           RESTRICTED STOCK AWARD PLAN

                       (EFFECTIVE AS OF DECEMBER 20, 2000)

1.       PURPOSE

                  The purpose of the Plan is to provide a means through which
the Company may promote the retention of employees of the Subsidiary and to
provide a means whereby such employees can acquire and maintain Stock ownership,
thereby strengthening their commitment to the welfare of the Company and
promoting an identity of interest between stockholders and these employees. The
Plan provides for granting Awards.

2.       DEFINITIONS

                  The following definitions shall be applicable throughout the
Plan.

                           (a)      "Affiliate" means (i) any entity that
directly or indirectly is controlled by, or is under common control with the
Company and (ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Committee..

                           (b)      "Award" means the grant of the right to
receive a specified number of shares of Company Stock on the Vesting Dates set
forth in Section 6.

                           (c)      "Board" shall having the meaning given to
such term in the Option Plan.

                           (d)      "Cause" means the Company or the Subsidiary
having "cause" to terminate a Participant's employment or service, as defined in
any existing employment, consulting or any other agreement between the
Participant and the Company or the Subsidiary, or, in the absence of such an
employment, consulting or other agreement, upon (i) the determination by the
Committee that the Participant has ceased to perform his duties to the Company
or the Subsidiary (other than as a result of his incapacity due to physical or
mental illness or injury), which failure amounts to a willful failure to perform
his duties to such party, (ii) the Committee's determination that the
Participant has engaged or is about to engage in conduct materially injurious to
the Company or the Subsidiary, (iii) the Participant having been convicted of,
or plead guilty or no contest to, a felony, (iv) material violation of contract
provisions or (v) with respect to a Participant who is a member of the
Management Team, the voluntary resignation of that Participant's employment due
to a material decrease in salary and benefits or a reduction in responsibilities
or duties (other than a reduction in responsibilities or duties resulting,
directly or indirectly, from the Subsidiary's becoming a subsidiary of the
Company).

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                                                                               2

                           (e)      "Change of Control" shall having the meaning
given to such term in the Option Plan.

                           (f)      "Code" means the Internal Revenue Code of
1986, as amended. Reference in the Plan to any section of the Code shall be
deemed to include any amendments or successor provisions to such section and any
regulations under such section.

                           (g)      "Committee" shall having the meaning given
to such term in the Option Plan.

                           (h)      "Company" means EXFO Electro-Optical
Engineering Inc.

                           (i)      "Date of Grant" means December 20, 2000 or
such other date as set forth next to a Participant's name on Schedule 1 hereto.

                           (j)      "Disability" means a condition entitling a
person to receive benefits under the long-term disability plan of the Company or
the Subsidiary, as may be applicable to the Participant in question, or, in the
absence of such a plan, the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, as
determined by the Committee based upon medical evidence acceptable to it.

                           (k)      "Management Team" means an employee of the
Subsidiary whose name is set forth on Schedule 2 hereto.

                           (l)      "Normal Termination" means termination of
employment or service with the Company and Affiliates:

                                    (i)     on account of death or Disability;
         or

                                    (ii)    on account of retirement on or after
         age 60.

                           (m)      "Option Plan" means the Stock Option Plan of
EXFO Electro-Optical Engineering Inc.

                           (n)      "Participant" means an employee of the
Subsidiary whose name is set forth on Schedule 1 hereto.

                           (o)      "Plan" means this EXFO Electro-Optical
Engineering Inc. Restricted Stock Award Plan.

                           (p)      "Restricted Period" means the period of time
from the grant date of an Award through the Vesting Date of shares of Stock
subject thereto.

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                                                                               3

                           (q)      "Stock" means the subordinate voting shares
of the Company.

                           (r)      "Subsidiary" means Burleigh Instruments,
Inc.

                           (s)      "Vesting Date" means each of the first four
anniversaries of the Date of Grant.

3.       EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL

                  The Plan is effective as of December 19, 2000 (the "Effective
Date"). The expiration date of the Plan, on and after which no Awards may be
granted hereunder, shall be the next business day immediately following the Date
of Grant; PROVIDED, HOWEVER, that the administration of the Plan shall continue
in effect until all matters relating to the payment of Awards previously granted
have been settled.

4.       ADMINISTRATION

                  The Committee shall administer the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award or any documents evidencing any and all Awards shall be within the sole
discretion of the Committee, may be made at any time granted pursuant to the
Plan and shall be final, conclusive, and binding upon all parties, including,
without limitation, the Company, Affiliate, any Participant, any holder or
beneficiary of any Award, and any shareholder. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award hereunder.

5.       GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN

                  The Committee shall grant the Awards set forth on Schedule 1
hereto to the Participants on the Date of Grant. Subject to Section 8, the
aggregate number of shares of Stock in respect of which Awards may be granted
under the Plan is 360,000 shares. Stock delivered by the Company in settlement
of Awards granted under the Plan shall be authorized and unissued Stock or Stock
held in the treasury of the Company.

6.       TERMS OF AWARDS.

                           (a)      RESTRICTED PERIOD; VESTING. The Restricted
Period of an Award shall commence on the Date of Grant and shall, subject to the
Participant's continued employment with the Company, the Subsidiary or any
Affiliate, expire with respect to 25% of Stock subject to an Award on each of
the Vesting Dates.

                           (b)      ISSUANCE OF SHARES; NO RIGHTS. Upon a
Vesting Date of an Award, the restrictions set forth in Section 6(c) shall be of
no further force or effect with

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                                                                               4

respect to the portion of an Award which has vested and has not then been
forfeited and the Committee shall cause a stock certificate registered in the
name of the Participant, or his beneficiary (as applicable), to be issued for
the number of shares of Stock with respect to which the Restricted Period
expired on such Vesting Date. No Participant shall have any rights or privileges
of a stockholder as to an Award, including the right to vote and receive
dividends, other than in respect of Stock with respect to which the Restricted
Period has expired.

                           (c)      RESTRICTIONS.

                                    (i)     No Award may be assigned, alienated,
         pledged, attached, sold or otherwise transferred or encumbered by a
         Participant otherwise than by will or by the laws of descent and
         distribution and any such purported assignment, alienation, pledge,
         attachment, sale, transfer or encumbrance shall be void and
         unenforceable against the Company or the Subsidiary; provided that the
         designation of a beneficiary shall not constitute an assignment,
         alienation, pledge, attachment, sale, transfer or encumbrance.

                                    (ii)    An Award shall be subject to
         forfeiture to the extent provided in Section 6(d) and all rights of the
         Participant to such Award shall terminate without further obligation on
         the part of the Company or the Subsidiary.

                                    (iii)   The Committee shall have the
         authority to remove any or all of the restrictions on the Award
         whenever it may determine that, by reason of changes in applicable laws
         or other changes in circumstances arising after the date of the Award,
         such action is appropriate.

                           (d)      FORFEITURE PROVISIONS. In the event a
Participant terminates employment with the Company or the Subsidiary during a
Restricted Period, that portion of the Award with respect to which restrictions
have not expired ("Non-Vested Portion") shall be treated as follows.

                                    (i)     Upon the voluntary resignation of a
         Participant or discharge by the Company or the Subsidiary for Cause or
         the discharge of a Participant who is not a member of the Management
         Team by the Company or the Subsidiary without Cause prior to a Change
         of Control, the Non-Vested Portion of the Award shall be completely
         forfeited.

                                    (ii)    Upon Normal Termination, the
         Non-Vested Portion of the Award shall become fully vested but the
         Restricted Period shall continue to apply with respect to the Award, so
         that the restrictions shall remain in effect through the Vesting Dates
         originally contemplated by this Plan.

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                                                                               5

                                    (iii)   With a respect to a Participant who
         is a member of the Management Team, upon a termination without Cause
         that is initiated by the Company, the Award shall become fully vested
         and the Restricted Period shall expire with respect to the entire
         Award.

                                    (iv)    With a respect to a Participant who
         is a member of the Management Team, upon a termination without Cause
         prior to a Change of Control that is initiated by the Subsidiary, the
         Non-Vested Portion of the Award shall be completely forfeited.

                                    (v)     Notwithstanding any other provision
         in this Plan to the contrary, upon a termination of a Participant's
         employment without Cause by the Company or the Subsidiary (or their
         respective successors) following a Change of Control, the Award shall
         become fully vested and the Restricted Period shall expire with respect
         to the entire Award.

7.       GENERAL

                           (a)      GOVERNMENT AND OTHER REGULATIONS. The
obligation of the Company to make payment of Awards in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by governmental agencies as may be required. Notwithstanding any terms or
conditions of any Award to the contrary, the Company shall be under no
obligation to offer to sell or to sell and shall be prohibited from offering to
sell or selling any shares of Stock pursuant to an Award unless such shares have
been properly registered for sale pursuant to the Securities Act with the
Securities and Exchange Commission or subject to the prospectus requirements in
Canada or unless the Company has received an opinion of counsel, satisfactory to
the Company, that such shares may be offered or sold without such registration
pursuant to an available exemption therefrom and the terms and conditions of
such exemption have been fully complied with. If the shares of Stock offered for
sale or sold under the Plan are offered or sold pursuant to an exemption from
registration under the Securities Act or under any applicable legislation in
Canada, the Company may restrict the transfer of such shares and may legend the
Stock certificates representing such shares in such manner as it deems advisable
to ensure the availability of any such exemption.

                           (b)      TAX WITHHOLDING. A Participant shall be
required to pay to the Company or any Affiliate and the Company or any Affiliate
shall have the right and is hereby authorized to withhold from any compensation
or other amounts owing to a Participant the amount in cash of any required tax
withholding and payroll taxes in respect of an Award, its exercise, or any
payment or transfer under an Award or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes; provided that the Company may make
such alternate arrangements for withholding as it deems appropriate including,
without limitation,

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                                                                               6

establishing a program pursuant to which sufficient Shares (out of those Shares
due upon the vesting of an Award) to satisfy any withholding liability shall be
delivered directly to a broker who shall sell the Shares on behalf of the
Participant and remit the proceeds thereof to the Company to satisfy the
Participant's withholding liability.

                           (c)      CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No
employee of the Company or the Subsidiary, or other person, shall have any claim
or right to be granted an Award under the Plan or, having been selected for the
grant of an Award, to be selected for a grant of any other Award. Neither the
Plan nor any action taken hereunder shall be construed as giving any Participant
any right to be retained in the employ or service of the Company or the
Subsidiary.

                           (d)      NO LIABILITY OF COMMITTEE MEMBERS. No member
of the Committee shall be personally liable by reason of any contract or other
instrument executed by such member or on his behalf in his capacity as a member
of the Committee nor for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the Committee and each
other employee, officer or director of the Company to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; PROVIDED, HOWEVER, that approval of the Board
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.

                           (e)      GOVERNING LAW. The Plan shall be governed by
and construed in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof, or principals of
conflicts of laws of any other jurisdiction which could cause the application of
the laws of any jurisdiction other than the State of New York.

                           (f)      RELIANCE ON REPORTS. Each member of the
Committee and each member of the Board shall be fully justified in relying,
acting or failing to act, and shall not be liable for having so relied, acted or
failed to act in good faith, upon any report made by the independent public
accountant of the Company and Affiliates and upon any other information
furnished in connection with the Plan by any person or persons other than
himself.

                           (g)      RELATIONSHIP TO OTHER BENEFITS. No payment
under the Plan shall be taken into account in determining any benefits under any
pension, retirement, profit

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                                                                               7

sharing, group insurance or other benefit plan of the Company or any affiliate
except as otherwise specifically provided in such other plan.

                           (h)      EXPENSES. The expenses of administering the
Plan shall be borne by the Company.

                           (i)      PRONOUNS. Masculine pronouns and other words
of masculine gender shall refer to both men and women.

                           (j)      TITLES AND HEADINGS. The titles and headings
of the sections in the Plan are for convenience of reference only, and in the
event of any conflict, the text of the Plan, rather than such titles or headings
shall control.

                           (k)      TERMINATION OF EMPLOYMENT. For all purposes
herein, a person who transfers from employment or service with the Company to
employment or service with the Subsidiary or any other Affiliate of the Company
or vice versa shall not be deemed to have terminated employment or service with
the Company or the Subsidiary.

                           (l)      SEVERABILITY. If any provision of the Plan
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.

8.       CHANGES IN CAPITAL STRUCTURE

                  If determined by the Board, Awards granted under the Plan
shall be subject to adjustment or substitution, as determined by the Committee
in its sole discretion, as to the number, price or kind of a share of Stock or
other consideration subject to such Awards or as otherwise determined by the
Committee to be equitable (i) in the event of changes in the outstanding Stock
or in the capital structure of the Company by reason of stock or extraordinary
cash dividends, stock splits, reverse stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any such
Award which do not constitute a Change of Control or (ii) in the event of any
change in applicable laws or any change in circumstances which results in or
would result in any substantial dilution or enlargement of the rights granted
to, or available for, Participants, or which otherwise warrants equitable
adjustment because it interferes with the intended operation of the Plan.

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                                                                               8

9.       EFFECT OF CHANGE OF CONTROL

                           (a)      In the event of a Change of Control,
notwithstanding any vesting schedule with respect to an Award, the Committee
shall in its discretion (i) provide through advance written notice to the
Participants that the Restricted Period shall expire immediately with respect to
100 percent of the shares of Stock covered by an Award or (ii) upon advance
written notice to the Participants or other affected persons, cancel any
outstanding Awards and pay to the holders thereof, in cash or stock, or any
combination thereof, the value of such Awards based upon the price per share of
Stock received or to be received by other shareholders of the Company in the
event.

                           (b)      The obligations of the Company under the
Plan shall be binding upon any successor corporation or organization resulting
from the merger, consolidation or other reorganization of the Company, or upon
any successor corporation or organization succeeding to substantially all of the
assets and business of the Company. The Company agrees that it will make
appropriate provisions for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.

10.      NONEXCLUSIVITY OF THE PLAN

                  Neither the adoption of this Plan by the Board nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under this Plan, and
such arrangements may be either applicable generally or only in specific cases.

11.      AMENDMENTS AND TERMINATION

                  The Board may amend, alter, suspend, discontinue, or terminate
the Plan or any portion thereof at any time; PROVIDED that no such amendment,
alteration, suspension, discontinuation or termination shall be made without
shareholder approval if such approval is necessary to comply with any tax or
regulatory requirement applicable to the Plan; and PROVIDED FURTHER that any
such amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.

                                      * * *

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                                                                               9

As adopted by the Board of Directors of
EXFO Electro-Optical Engineering Inc.
as of December 20, 2000.

<PAGE>

                                   SCHEDULE 1

                                  PARTICIPANTS

--------------------------------------------------------------------------------
                            Stock Awards Distribution
--------------------------------------------------------------------------------
AWARDS AT 12/20/2000                    SHARES
--------------------                    ------
--------------------------------------------------------------------------------
Employee                               0.010542
--------------------------------------------------------------------------------
Battisti, Peter                          42,500
--------------------------------------------------------------------------------
Samoriski, Brian                         42,500
--------------------------------------------------------------------------------
Henderson, Dave                          30,000
--------------------------------------------------------------------------------
Payne, Cynthia                           22,500
--------------------------------------------------------------------------------
Klimasewski, Tim                         20,000
--------------------------------------------------------------------------------
Henry, Loretta                             8009
--------------------------------------------------------------------------------
Kowulich, Beverly                          8316
--------------------------------------------------------------------------------
Schutt, William                            7267
--------------------------------------------------------------------------------
Guarino, Joseph                            6262
--------------------------------------------------------------------------------
Dickinson, William                         6000
--------------------------------------------------------------------------------
Gliewe, Mary                               4301
--------------------------------------------------------------------------------
Kruly, Paul                                6749
--------------------------------------------------------------------------------
Clark, Lawrence                            7434
--------------------------------------------------------------------------------
Farchione, Marcia                          4017
--------------------------------------------------------------------------------
Zobel, Jim                                 6830
--------------------------------------------------------------------------------
Trudeau, Marie                             3782
--------------------------------------------------------------------------------
Merlau, Lisa                               3691
--------------------------------------------------------------------------------
Kelsey, Jean                               3463
--------------------------------------------------------------------------------
Laird, Tammy                               3037
--------------------------------------------------------------------------------
Blair, Robert                              7608
--------------------------------------------------------------------------------
Theodorsen, John                           3500
--------------------------------------------------------------------------------

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                                                                               2

--------------------------------------------------------------------------------
AWARDS AT 12/20/2000                    SHARES
--------------------                    ------
--------------------------------------------------------------------------------
Townsend, Robert                           6775
--------------------------------------------------------------------------------
Worek, Keith                               5013
--------------------------------------------------------------------------------
Terwilliger, Timothy                       2947
--------------------------------------------------------------------------------
Skirvin, Chet                              4169
--------------------------------------------------------------------------------
Switzer, Paul                              3753
--------------------------------------------------------------------------------
Conway, Timothy                            3029
--------------------------------------------------------------------------------
Fanton, Kenneth                            4739
--------------------------------------------------------------------------------
Edwards, Jonathan                          2345
--------------------------------------------------------------------------------
Bennett, Lonnie                            4460
--------------------------------------------------------------------------------
Jarvie, Donald                             5572
--------------------------------------------------------------------------------
Houk, Michael                              5127
--------------------------------------------------------------------------------
Yoffee, Susan                              1339
--------------------------------------------------------------------------------
Shepardson, Alan                           2612
--------------------------------------------------------------------------------
Haas, Fred                                 5624
--------------------------------------------------------------------------------
Nothnagle, Joseph                          1360
--------------------------------------------------------------------------------
Smothers, Ruth                             1515
--------------------------------------------------------------------------------
Friedrich, Edward                          3769
--------------------------------------------------------------------------------
Knight, Ellen                              1510
--------------------------------------------------------------------------------
Graf, Michael                              3543
--------------------------------------------------------------------------------
Culhane, Robert                            1476
--------------------------------------------------------------------------------
Pierce, Sharon                              642
--------------------------------------------------------------------------------
Rayburn, Justin                             779
--------------------------------------------------------------------------------
White, Mabel                                844
--------------------------------------------------------------------------------
Viggiano III, Dan                          1703
--------------------------------------------------------------------------------
Supinski, Peter                            1513
--------------------------------------------------------------------------------

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                                                                               3

--------------------------------------------------------------------------------
AWARDS AT 12/20/2000                    SHARES
--------------------                    ------
--------------------------------------------------------------------------------
Dobbelaere, Donald                         1981
--------------------------------------------------------------------------------
Shirley, Thomas                            1133
--------------------------------------------------------------------------------
Blend, James                               1292
--------------------------------------------------------------------------------
Searls, Lynn                               1573
--------------------------------------------------------------------------------
Craghead, Michael                          2048
--------------------------------------------------------------------------------
Fasick, John                               1681
--------------------------------------------------------------------------------
Snow, Cynthia                              1215
--------------------------------------------------------------------------------
Szydlowski, Alan                            518
--------------------------------------------------------------------------------
Patterson, Amy                              206
--------------------------------------------------------------------------------
Adams, Larry                                439
--------------------------------------------------------------------------------
Bell, Armond                                302
--------------------------------------------------------------------------------
Jobson, Kim                                 437
--------------------------------------------------------------------------------
Hersom, Walter                             1015
--------------------------------------------------------------------------------
Kondziela, M. Jefrey                       1550
--------------------------------------------------------------------------------
Guidarelli, Thomas                          865
--------------------------------------------------------------------------------
Tolbert, Mark                              1322
--------------------------------------------------------------------------------
Hayman, Bonnie                              681
--------------------------------------------------------------------------------
Kost, Ann                                  1989
--------------------------------------------------------------------------------
McKee, Ann                                  273
--------------------------------------------------------------------------------
Chapman, Mark                              1516
--------------------------------------------------------------------------------
Duver, Frank                                843
--------------------------------------------------------------------------------
Kloiber, George                             432
--------------------------------------------------------------------------------
Xu, Qin                                    1028
--------------------------------------------------------------------------------
Perry, Lyn                                  111
--------------------------------------------------------------------------------
Wiedrick, Michele                            25
--------------------------------------------------------------------------------

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                                                                               4

--------------------------------------------------------------------------------
AWARDS AT 12/20/2000                    SHARES
--------------------                    ------
--------------------------------------------------------------------------------
Adler, Curtis                               167
--------------------------------------------------------------------------------
Bielk, Noah                                  25
--------------------------------------------------------------------------------
McMyne, Christopher                          43
--------------------------------------------------------------------------------
Rosato, Michael                              53
--------------------------------------------------------------------------------
White, Timothy                               51
--------------------------------------------------------------------------------
Klinger, Charles                            167
--------------------------------------------------------------------------------
Lusk, Barbara                               155
--------------------------------------------------------------------------------
Amarel, Anthony                             279
--------------------------------------------------------------------------------
Dera, Peter                                 867
--------------------------------------------------------------------------------
Nader, Nabil                                247
--------------------------------------------------------------------------------
Marchese-Ragona, Silvio                     193
--------------------------------------------------------------------------------
Sargent, Mathew                             526
--------------------------------------------------------------------------------
Clapper, David                              166
--------------------------------------------------------------------------------
Reynolds, Melody                            711
--------------------------------------------------------------------------------
Alongi, Anthony                             350
--------------------------------------------------------------------------------
Selice, Frank                                25
--------------------------------------------------------------------------------
Singley, Joseph                             185
--------------------------------------------------------------------------------
Willis, Terleta                             167
--------------------------------------------------------------------------------
Anne, Wendy                                  36
--------------------------------------------------------------------------------
Block, Kristofer                            276
--------------------------------------------------------------------------------
Goodman, Carol                               49
--------------------------------------------------------------------------------
Licata, Ignatius                            111
--------------------------------------------------------------------------------
Polakiewicz, Sheree                         961
--------------------------------------------------------------------------------
Schnitzer, Laurie                           104
--------------------------------------------------------------------------------
Hereth, Jeffrey                             369
--------------------------------------------------------------------------------

<PAGE>

                                                                               5

--------------------------------------------------------------------------------
AWARDS AT 12/20/2000                    SHARES
--------------------                    ------
--------------------------------------------------------------------------------
Kavcak, Alexander                           336
--------------------------------------------------------------------------------
Burns, Robert                               113
--------------------------------------------------------------------------------
Powers, Galen                               118
--------------------------------------------------------------------------------
Smith, Jim                                 3005
--------------------------------------------------------------------------------
Lombard, Matthew                            111
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total at 12/20/00                       357,500
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Subsequent Awards
--------------------------------------------------------------------------------
Employee                                Shares              Date
--------------------------------------------------------------------------------
Alan Olderstein                            1500             (January 31, 2001)
--------------------------------------------------------------------------------
James Bluett                               1000             (January 31, 2001)
--------------------------------------------------------------------------------
Total Subsequent Awards                    2500
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total All Awards                        360,000
--------------------------------------------------------------------------------

<PAGE>

                                   SCHEDULE 2

                                 MANAGEMENT TEAM

Peter Battisti
Brian Samoniski
Dave Henderson
Cynthia Payne
Tim Klimasewski<PAGE>   1

                                                                    EXHIBIT 10.1

                                                                    CONFIDENTIAL

                                                                January 10, 2001

To The Board of Managers
of International Radiology Group, L.L.C.
40 Skokie Boulevard
Northbrook, IL  60062-1618

         Re:      LETTER OF UNDERSTANDING

Gentlemen:

         This letter of understanding ("LETTER") sets forth the basic terms and
conditions pursuant to which US Diagnostic, Inc., a Delaware corporation ("USD")
proposes a transaction ("TRANSACTION") resulting in the combination of
International Radiology Group, L.L.C., a Delaware limited liability company
("IRG") (including American Imaging Management, Inc. ("AIM") with USD.

1.       TERM SHEET. USD intends to proceed with the Transaction in accordance
         with the commercial terms set forth in this Letter and the term sheet
         attached hereto as ATTACHMENT A (the "TERM SHEET"). To the extent there
         is any conflict between the Term Sheet and this Letter, this Letter
         shall control.

2.       PUBLIC ANNOUNCEMENTS. The parties agree that any public announcement
         relating to the Transaction shall be made pursuant to a joint press
         release subject to the prior review and consent of each party, except
         to the extent a party may deem it necessary to comply with laws,
         including securities law.

3.       EXPENSES. USD and IRG shall be responsible for their own expenses,
         including fees and expenses of counsel, advisors and consultants;
         PROVIDED, HOWEVER, the filing fees pursuant to the Hart-Scott-Rodino
         Antitrust Improvements Act of 1976 ("HSR ACT") shall be split equally
         by the parties.

4.       EXCLUSIVITY. During the Exclusivity Period (as hereinafter defined),
         IRG shall work with USD to negotiate and execute definitive agreements
         and to close and complete the Transaction, and IRG will not directly or
         indirectly or in any manner whatsoever (including, without limitation,
         through an affiliate or subsidiary or through any agency, trust or
         nominee arrangement):

         (a)      enter into or agree to enter into, any agreement with respect
                  to the sale of IRG or AIM or any of their respective
                  businesses' assets or properties (hereinafter collectively
                  referred to as "IRG Group"), participate in any discussions or
                  otherwise make or solicit any proposal or offer with respect
                  to the sale of the IRG Group which competes with, or may
                  compete with or otherwise prevent or delay
<PAGE>   2

                  the completion of the Transaction (including, without
                  limitation, by way of equity, debt, participation, agency,
                  management or operatorship); or

         (b)      sell or agree to sell, solicit or make any proposal or
                  participate in any discussions to or offer to sell any
                  interest in the IRG Group or otherwise transfer any interest
                  in the IRG Group; however IRG may enter into an action to
                  raise additional capital (the "Capital Raise") to meet the
                  essential operating requirements of IRG's business provided,
                  (i) IRG will not solicit a transaction, whether by merger or
                  otherwise, pursuant to which a person or entity not currently
                  a member of IRG acquires more than 20% of the outstanding
                  limited liability company interest of IRG; (ii) the merger
                  consideration as set forth in the Term Sheet shall not change;
                  and (iii) USD is not otherwise adversely effected by such
                  Capital Raise.

                  For breach by IRG of this paragraph 4, in addition to any
         other remedies available to USD, USD shall be entitled, without proof
         of damage, to any and all equitable and injunctive relief. The
         provisions of this paragraph 4 shall be binding until March 31, 2001
         (the "EXCLUSIVITY PERIOD").

                  Except as required by law in the fulfillment of the fiduciary
         duties of the USD's Board of Directors, USD agrees that during the
         Exclusivity Period it will not solicit a transaction, whether by merger
         or otherwise, pursuant to which a person or entity not currently a
         stockholder of USD acquires more than 50% of the issued and outstanding
         common stock of USD. Notwithstanding the foregoing, IRG acknowledges
         and agrees that USD intends to continue to pursue transactions to sell
         its imaging centers during this Exclusivity Period.

                  This Letter shall be deemed terminated automatically upon the
         expiration of the Exclusivity Period, unless extended by written
         consent of USD and IRG. In such case, neither USD nor IRG shall have
         any further obligation or liability (in tort, contract or otherwise) to
         the other, except as provided in paragraphs 2 and 3, which obligations
         shall survive the termination of this Letter.

5.       NEGOTIATION OF DEFINITIVE AGREEMENTS. Subject to the terms and
         conditions of this Letter, the parties agree to enter into good faith
         negotiations toward the preparation, execution and delivery of
         definitive agreements that shall set forth the terms and conditions of
         the Transaction as described in this Letter and the Term Sheet (the
         "DEFINITIVE AGREEMENTS"). The terms and provisions of the Definitive
         Agreements shall be mutually acceptable to the parties. The Definitive
         Agreements shall be prepared by USD's counsel and approved by the
         parties.

6.       CLOSING CONDITIONS. The closing of the Transaction shall be contingent
         upon conditions customary to transactions of this nature, including,
         but not limited to, the following:

         (a)      with respect to USD:

                  (i)      there shall not have occurred (i) any damage, loss or
                           condemnation of any material assets, properties or
                           contracts of the IRG Group or (ii) a material adverse

                                      -2-
<PAGE>   3

                           change (A) in the financial condition or results of
                           operations of the IRG Group, (B) in the business,
                           assets, operations or prospects of the IRG Group or
                           (C) in any law or regulation applicable to the IRG
                           Group;

                  (ii)     receipt of all (A) necessary consents from
                           non-regulatory third parties (including USD's
                           lenders) and (B) applicable regulatory approvals
                           required for the completion of the Transaction and
                           the expiration of any waiting periods required under
                           the HSR Act or other applicable law or regulation;

                  (iii)    approval of the Transaction by the Board of Directors
                           and stockholders of USD;

                  (iv)     the satisfactory completion, in USD's sole
                           discretion, of USD's due diligence review of the IRG
                           Group;

                  (v)      the Form S-4 Registration Statement (or other
                           appropriate form) containing the joint proxy
                           statement of USD and IRG and the prospectus
                           ("PROXY/PROSPECTUS") for the shares of common stock
                           ("TRANSACTION SHARES") constituting part of the
                           consideration shall have been declared effective by
                           the Securities and Exchange Commission ("SEC");

                  (vi)     prior to mailing the Proxy/Prospectus the Board of
                           Directors shall have received an opinion from its
                           financial advisor that the Transaction is fair from a
                           financial point of view to the USD Stockholders;

                  (vii)    the Transaction Shares shall have been listed by
                           NASDAQ National Market System, upon notice of
                           issuance;

                  (viii)   CIGNA shall have indicated to USD that consummation
                           of the Transaction will not result in an adverse
                           change in CIGNA's current relationship with AIM;

                  (ix)     the Transaction shall not (A) require USD to obtain a
                           waiver or modification from the holders of its 9%
                           Subordinated Convertible Debentures due 2003 ("PUBLIC
                           DEBT"); or (B) constitute a "change in control" under
                           the Public Debt; and

                  (x)      prior to the execution of the Definitive Agreements
                           IRG shall have delivered to USD the following audited
                           financial statements (A) for IRG and AIM for their
                           respective 1997, 1998 and 1999 fiscal years; (B) for
                           IRG and AIM for their respective three month periods
                           ended March 31, 2000; and (C) for IRG and AIM as the
                           combined IRG Group for the six month period from
                           April 1, 2000 to September 30, 2000.

         (b)      with respect to IRG:

                  (i)      receipt of all applicable regulatory approvals
                           required for the completion of the Transaction and
                           the expiration of any waiting periods required under
                           the HSR Act or other applicable law or regulation;

                                      -3-
<PAGE>   4

                  (ii)     the members of IRG shall have approved the
                           Transaction, including without limitation the
                           allocation of the Transaction consideration among
                           each member; and

                  (iii)    the satisfactory completion in IRG's sole discretion,
                           of IRG's due diligence review of USD.

7.       INVESTIGATION. USD, its agents, its representatives and its lenders
         shall be permitted to make a full and complete investigation of the
         assets, properties, business affairs and financial condition of the IRG
         Group, including access to the books, records, financial information,
         agreements and all other documents of the IRG Group. IRG, its agents,
         its representatives and its lenders shall be permitted to make a full
         and complete investigation of the assets, property, business offices
         and financial condition of USD, including access to the books, records,
         financial information, agreements and all other documents of USD. All
         information obtained by either party in the course of its investigation
         shall be kept confidential in accordance with the terms of the
         Confidentiality Letter (as hereinafter defined).

8.       NON-BINDING NATURE. Except as to paragraphs 2, 3, 4, 5, 6 and 7 hereof,
         the parties hereto understand and agree that this Letter and Term Sheet
         set forth the parties' current understanding of agreements, which may
         be set out in a binding fashion in the Definitive Agreements to be
         executed at a later date. Except as to paragraphs 2, 3, 4, 5, 6 and 7
         hereof, this letter does not create and is not intended to create a
         binding and enforceable contract between the parties and may not be
         relied upon by either party as the basis for a contract by estoppel or
         otherwise, but rather evidences a non-binding expression of good faith
         understanding to endeavor, without obligation, to negotiate mutually
         agreeable Definitive Agreements.

9.       NO OTHER AGREEMENTS. Subject to the foregoing, there are no other
         written or oral agreements or understandings between the parties
         hereto, other than the confidentiality agreements contained in that
         certain letter, dated July 13, 2000, between USD and IRG (the
         "CONFIDENTIALITY LETTER"), which agreement and undertaking shall remain
         in full force and effect between and among the parties despite the
         execution of this Letter.

10.      GOVERNING LAW. The rights and obligations set forth in this Letter
         shall be governed by the laws of the State of Florida, without regard
         to principles of conflicts of laws thereof.

11.      SUCCESSOR AND ASSIGNS. This Letter and the rights and obligations of
         USD and IRG shall not be assignable.

12.      AMENDMENT. This Letter may only be amended or modified by a writing
         executed by USD and IRG.

13.      IRG BOARD OF MANAGERS APPROVAL. By IRG's execution of this letter, IRG
         is representing and warranting to USD that this Letter and the
         Transaction contemplated hereby have been approved by the IRG Board of
         Managers.

                            [signature page follows]

                                      -4-
<PAGE>   5

         If the terms and conditions of this Letter are in accord with your
understanding, please sign and return a counterpart of this Letter no later than
5:00 p.m. (EST) January 12th, 2001, after which date, if not returned, this
Letter shall be null and void.

                                               Very truly yours,

                                               US DIAGNOSTIC, INC.

                                               By: /s/ David McIntosh
                                                   -----------------------------
                                                   David McIntosh, Director

Acknowledged and agreed to
this 12 day of January, 2001.

INTERNATIONAL RADIOLOGY GROUP, LLC

By: /s/ J.R. Holland, Jr.
    -------------------------------
Name:  J.R. Holland, Jr.
       ----------------------------
Title: Manager
       ----------------------------

                   [Signature Page to Letter of Understanding]

                                      -5-
<PAGE>   6

                                  ATTACHMENT A

                                   TERM SHEET

TRANSACTION STRUCTURE:     While we presently intend for the transaction to be
                           a merger of IRG with and into USD, or a wholly owned
                           subsidiary of USD, the final structure will depend on
                           the mutual agreement of USD and IRG after a review of
                           the tax, accounting and legal issues. For purposes of
                           this letter the transaction is hereinafter referred
                           to as the "MERGER." The surviving party in the Merger
                           is hereinafter referred to as the "ISSUER," and the
                           common stock of the Issuer is hereinafter referred to
                           as "MERGER SHARES."

MERGER CONSIDERATION:      As of September 30, 2000 USD had 22,710,033 shares of
                           common stock issued and outstanding and 2,949,946
                           shares of common stock subject to outstanding options
                           and warrants. The members of IRG (including, without
                           limitation the holders of Class A, Class B, Class B-1
                           (if any) and Class C shares) and holders of options
                           for IRG shares the ("Members") would be entitled to
                           aggregate consideration as a result of the Merger
                           equal to Merger Shares representing 49% of the issued
                           outstanding Merger Shares on a fully-diluted post
                           merger basis. In addition, the Members would receive
                           $10 million in additional consideration consisting of
                           $5 million in cash and $5 million in a Subordinated
                           Unsecured Debenture according to the terms below.
                           Such consideration is subject to change based upon
                           the completion of due diligence by both parties.

SUBORDINATED UNSECURED
DEBENTURE:                 Amount                 $5 million
                           Term                   5 Year
                           Interest               8% per annum
                           Amortization           Year 1:           $0
                                                  Year 2:           $0
                                                  Year 3:           $1 million
                                                  Year 4:           $2 million
                                                  Year 5:           $2 million

ISSUER BOARD OF DIRECTORS: The composition of the Issuer's initial Board of
                           Directors shall be agreed upon as part of the
                           Definitive Agreements, PROVIDED, HOWEVER, the
                           nominees of IRG shall represent a majority of the
                           initial Board of Directors.

MANAGEMENT:                The officers and management team of the Issuer shall
                           be agreed upon between USD and IRG as part of the
                           Definitive Agreements.

                                      A-1

<PAGE>   7

STOCK OPTIONS:             Prior to mailing the Proxy/Prospectus USD and IRG
                           shall agree upon the available post Merger stock
                           option pool and the guidelines with respect to the
                           granting of options.

VOTING AGREEMENTS:         Prior to mailing the Proxy/Prospectus, IRG shall have
                           obtained and delivered to USD the agreement of
                           holders of its Class A voting shares representing at
                           least 51% of the entire class and all of the holders
                           of its Class C shares to vote for the Merger.

REPRESENTATIONS,
WARRANTIES,
COVENANTS AND
INDEMNIFICATION
PROVISIONS:                The representations, warranties, covenants and
                           indemnification set forth in the Definitive
                           Agreements shall be customary to transactions of this
                           nature and shall be mutually agreed upon by the
                           parties.

OTHER TERMS AND
CONDITIONS:                This Term Sheet does not purport to be all-inclusive.
                           Definitive Agreements will include other matters that
                           are not covered by or made clear herein and are
                           subject to the mutual agreement of the parities.

                           THIS SUMMARY OF TERMS AND CONDITIONS IS ATTACHMENT A
                           TO LETTER OF UNDERSTANDING DATED JANUARY 8, 2001 AND
                           IS NOT TO BE CONSIDERED SEPARATELY FROM THE LETTER OF
                           UNDERSTANDING. EXCEPT AS SET OUT IN THE LETTER OF
                           UNDERSTANDING, THE LETTER OF UNDERSTANDING AND THIS
                           ATTACHMENT A ARE NOT INTENDED TO BE COMPLETE AND
                           ALL-INCLUSIVE AS TO THE TERMS OF THE PROPOSED
                           TRANSACTION, NOR DOES THE LETTER OF UNDERSTANDING OR
                           THIS ATTACHMENT A CREATE A BINDING AND ENFORCEABLE
                           CONTRACT BETWEEN OR COMMITMENT OR OFFER TO ANY PARTY
                           OR PARTIES.

                                      A-2

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