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                                                                   EXHIBIT 10.78

                       [FERROFLUIDICS CORPORATION HEADER]



MEMO OF UNDERSTANDING



DATE:   July 1, 1999



TO:     Mr. Timothy D. Barton
        c/o Ferrofluidics Corporation
        Nashua, New Hampshire


This memo confirms our discussions leading to a change in your employment
agreement effective July 5, 1999, as outlined below:

     -   Your title remains Vice President, and your employment with the
         corporation continues to be at will.

     -   If you should be severed from the company by a corporate change in
         control, you will receive a lump-sum payment of six months salary.

     -   All other benefit entitlements, with the exception of the severance
         payment described above, will be the same as for any other employee,
         and all outstanding option and stock arrangements remain unchanged.

Please acknowledge your acceptance of these terms by signing below and
returning one copy of this letter to Human Resources.



/s/ Paul F. Avery, Jr.
- ---------------------------
Paul F. Avery, Jr.
President & CEO


ACCEPTED:



/s/ Timothy D. Barton
- ---------------------------
Timothy D. Barton