Exhibit
4.12





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





THIS
NOTE IS ISSUED IN SUBSTITUTION FOR, AND SUPERSEDES, THE ORIGINAL
NOTE


DATED
OCTOBER 31, 2003





Principal
      Amount:             $1,500,000
              April
      1, 2009





FOR VALUE RECEIVED, PHOTONIC PRODUCTS
GROUP INC. (FORMERLY 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 April
1, 2011.





1.
            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.




2.
            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.




3.
            Event of Default Defined;
      Acceleration of Maturity.  If one or more of the
      following events ("Events of Default") shall have
  occurred:




a)
            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;




b)
            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;




c)
            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.





4.
            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 one
      Unit for each dollar converted (or an aggregate of 1,500,000 Units,
      exclusive of accrued interest) with each Unit consisting of one fully paid
      and non-assessable shares of Issuer’s Common Stock (the "Common Stock")
      and one Warrants in the form of Exhibit A hereto to acquire 0.75 shares of
      Issuer’s Common Stock at a price of $1.35 up to April 1, 2014 (i.e. if
      this Note were converted in full, for principal amount other than accrued
      interest, the Holder would receive 1,500,000 shares of Common Stock and
      1,125,000 Warrants).  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 and
      Warrants 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.




4.1           Subdivision or Combination of Common
Stock.  In case Issuer shall at any time subdivide (by any
stock split, stock dividend or otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and, conversely, in
case the outstanding shares of Common Stock shall be combined into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.





4.2           Reorganization or
Reclassification.  If any capital reorganization or
reclassification of the capital stock of Issuer (other than in connection with a
merger or other reorganization in which Issuer is not the surviving entity)
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby the Holder shall thereupon have
the right to receive upon the conversion of this Note, upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of this Note, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for the shares of Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of the Holder to the end that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.





4.3           Notice of
Adjustment.  Upon any adjustment of the Conversion Price, then
and in each such case Issuer shall give written notice thereof, by delivery in
person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to the Holder at the address of the Holder, as provided to
Issuer, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.





4.4            Due Issuance of Shares Upon
Conversion.  Issuer covenants and agrees that all shares of
Common Stock or any such other securities which may be issued upon any whole or
partial conversion of this Note will, upon issuance, be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof.





4.5            Stock to be
Reserved.  Issuer will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issuance upon the
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion hereof.  Issuer
will not take any action which results in any adjustment of the Conversion Price
if the total number of shares of Common Stock issued and issuable after such
action upon conversion of this Note would, when added to the number of shares of
Common Stock then reserved for issuance, exceed the total number of shares of
Common Stock then authorized by Issuer’s Certificate of
Incorporation.





5.
            Subordination.  The
      Issuer hereby agrees, and the Holder of this Note by its acceptance
      agrees, that the payment of the principal of and interest on the Note is
      hereby expressly made subordinate and junior in right of payment, to the
      extent set forth in the following paragraphs (a), (b) and (c), to the
      prior payment in full of all Senior Debt of the Issuer, whether such
      Senior Debt, except as provided in Section 5 below, is incurred prior to,
      on or after the date hereof:










(a)            In
the event of insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceedings relative to the Issuer
or to any of the property of the Issuer, or in the event or any proceedings for
voluntary liquidation, dissolution, or other winding-up of the Issuer, whether
or not involving insolvency or bankruptcy, then the holders of Senior Debt shall
be entitled to receive payment in full of all principal of and interest on all
Senior Debt before the Holder of this Note shall be entitled to receive any
payment on account of principal or interest on this Note, and to that end the
holders of Senior Debt shall be entitled to receive for application in payment
thereof any payment or distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in any such
proceedings in respect of this Note.


(b)            In
the event that this Note is declared due and payable prior to its stated
maturity, by reason of the occurrence of an Event of Default hereunder (under
circumstances when the provisions of the foregoing paragraph (a) shall not be
applicable), then all principal of and interest on all Senior Debt outstanding
at the time of such declaration shall first be paid in full, before any payment
on account of principal or interest is made upon this Note.





(c)            The
Issuer may make payments and, subject to Section 1 of this Note, prepayments of
the principal of and interest of this Note if, at the time of the payment and
immediately after giving effect thereto, (i) there exists no default in any
payment with respect to any Senior Debt and (ii) there shall not have occurred
an event of default (other than a default in the payment of amounts due thereon)
with respect to any Senior Debt, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, other than an event of default which shall have been cured or waived or
shall have ceased to exist.  Should the Holder of this Note, while
there exists a default or an event of default as provided in the immediately
preceding sentence, and after being notified by the holder of the Senior Debt of
the default, receive any such payment, or should the Holder of this Note receive
any distribution in bankruptcy, dissolution, or similar insolvency proceedings
in regard to the Issuer, the Holder of the Note will hold such payment or
distribution in trust for the holder of the Senior Debt and will pay over such
amounts to such holder to apply to the Senior Debt until the same is paid in
full.





The provisions of this Section 5 are
for the purpose of defining the relative rights of the holders of Senior Debt
and the Holder of the Note against the Issuer and its
property.  Nothing herein shall impair, as between the Issuer and the
Holder of this Note, the obligation of the Issuer, which is unconditional and
absolute, to pay to the Holder the principal and interest in accordance with the
terms and the provisions hereof; nor shall anything herein prevent the Holder of
this Note from exercising all remedies otherwise permitted by applicable law or
hereunder upon default under this Note, subject to the rights, if any, under
this Section 5 of holders of Senior Debt to receive cash, property, stock or
obligation otherwise payable or deliverable to the Holder of this
Note.  The Issuer acknowledges and agrees that the rights of the
Holder of this Note with respect to the Issuer’s cash, property, rights and
other assets of any kind are senior and prior to the rights of any holder of
capital stock of the Issuer arising from such capital stock.





(d)           Definition.  “Senior
Debt” shall mean the principal of, interest on and, if applicable, any
premium on (i) the debt of the Issuer outstanding as of the date hereof,
(ii) additional indebtedness incurred by the Issuer after date hereof for
money borrowed from a bank, savings and loan association trust Issuer, insurance
Issuer or similar financial institution, (iii) purchase money secured debt,
(iv) obligations of the Issuer as lessee under leases of real or personal
property which are treated as capital lease obligations under generally accepted
accounting principles, and (v) any deferrals, renewals, re-financings or
extensions of any of the foregoing.





6.
            Miscellaneous.





6.1           Binding Effect;
Assignability.  This Note shall be binding upon Issuer, its
successors and its assigns, and shall inure to the benefit of Holder, its
successors and its assigns.  This Note is transferable or assignable
by the Holder or any transferee of the Holder only to an Affiliate or a partner,
or an heir, administrator, executor or successor of the Holder; provided that
such transfer or assignment is made in compliance with the Act and any
applicable state and foreign securities laws.





6.2           Governing Law; Jurisdiction;
Venue.  This Note has been executed in and shall be governed by
the laws of the State of New Jersey.  Issuer irrevocably submits to
the exclusive jurisdiction of the courts of the State of New Jersey which will
be the exclusive jurisdiction for disputes arising under the Note and the United
States District Court for the District of New Jersey for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Note.





IN WITNESS WHEREOF, Issuer has caused
this Note to be signed in its name by its duly authorized officer and its
corporate seal to be affixed hereto.





PHOTONIC
      PRODUCTS GROUP, INC.By:
              /s/ William J. FooteSecretary
      and Chief Financial
Office