Exhibit 10.4

THIS CONVERTIBLE PROMISSORY NOTE HAS BEEN, AND ANY SHARES ISSUED UPON CONVERSION PURSUANT TO THE TERMS HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THIS CONVERTIBLE PROMISSORY NOTE, AND ANY SECURITIES ISSUED UPON CONVERSION PURSUANT TO THIS NOTE, HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

SUBORDINATED CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, INRAD, INC., a New Jersey corporation (hereinafter called “Issuer”), hereby promises to pay to the order of CLAREX, LTD. and its successors and assigns (hereinafter called the “Holder”), at such address as the Holder may designate in writing to Issuer, the principal sum of ONE MILLION DOLLARS FIVE HUNDRED THOUSAND ($1,500,000) plus all accrued interest owing hereunder in lawful money of the United States of America on or before the Maturity Date (as defined below), unless this Convertible Promissory Note (the “Note”) is converted by the Holder as set forth herein.  For purposes of this Note, “Maturity Date” shall mean January 31, 2006.

Interest .  Interest shall accrue on the unpaid principal amount of this Note at the rate of six percent (6%) per annum and shall be due and payable on the Maturity Date.  Interest shall be computed on the basis of a 360 day year for the actual number of days elapsed.

Optional Prepayment; Order of Payments.  Issuer may prepay this Note at any time, in whole or in part, without premium or penalty; provided, however, Issuer shall provide to the Holder written notice at least ten (10) business days prior to such prepayment.  All payments made on account of this Note shall be applied first to the payment of any costs of enforcement then due hereunder, second to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid principal balance of this Note.

Event of Default Defined; Acceleration of Maturity .  If one or more of the following events (“Events of Default”) shall have occurred:

a default in the payment of all or any part of the principal or interest due under this Note as and when the same shall become due and payable, at maturity, by declaration as permitted hereunder, upon acceleration or otherwise;

Issuer shall merge or consolidate with or into any other person or entity, sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets or adopt a plan of liquidation or dissolution; provided , however , that Issuer shall have the right to merge with any other entity so long as Issuer shall be the surviving entity in any such merger;

Issuer shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with the consent of Issuer; or Issuer is generally not paying its debts as they become due or is insolvent, or has made a general assignment for the benefits of its creditors; or Issuer files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with its creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against Issuer seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of Issuer or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated (all such events, collectively “Insolvency Events”);

Then Holder, by notice in writing to Issuer (the “Acceleration Notice”), may declare the principal amount of this Note and all accrued but unpaid interest to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; provided that if an Insolvency Event occurs, the principal amount of this Note and all accrued but unpaid interest shall become and be immediately due and payable without any declaration or other act on the part of the Holder.

Conversion .  The Holder may, at any time prior to the earlier of the Maturity Date or the prepayment of this Note by Issuer, convert all or a portion of the principal and accrued interest then outstanding under this Note into fully paid and non-assessable shares of Issuer’s Common Stock (the “Common Stock”), at the Conversion Price (as defined below) per share.  Such conversion shall be effected by the Holder by sending a written notice of conversion and this Note to Issuer for cancellation and issuance of the number of shares of Common Stock into which this Note is being converted.  In the event this Note is being converted in part, a replacement Note representing the unconverted portion of this Note shall be delivered to the Holder.  Upon conversion of this Note, only whole shares of Common Stock shall be issued.  Any remainder due hereunder which is insufficient to purchase a whole share of Common Stock shall be paid by Issuer in cash.  The Conversion Price shall be (a) the price at which common stock is first issued for cash after the date of this Note to an unrelated third party investor or (b) the price mutually agreed to by the Issuer and the Holder as its then fair market value if no such

issuance has occurred within 12 months of the date hereof (the “Conversion Price”).  To supplement clause (a), if after the date hereof but before any third party purchase of Common Stock for cash, the Company issues any security convertible into