Exhibit 99.1

NANOPHASE TECHNOLOGIES CORPORATION

2006 STOCK APPRECIATION RIGHTS PLAN

     The purpose of the Nanophase Technologies Corporation 2006 Stock Appreciation Rights Plan (the “Plan”) is to attract and retain key employees of Nanophase Technologies Corporation (the “Company”) and to align financial incentives of those individuals with the financial objectives of the shareholders. The Company believes that the Plan will encourage the key employees to contribute materially to the growth of the Company, thereby benefiting the Company’s shareholders.

ARTICLE I

ADMINISTRATION OF THE PLAN

      Section 1.1 Administration .

      (a) Committee. The Plan shall be administered by the Compensation and Governance Committee of the Board of Directors (the “Committee”). The Committee shall consist of three or more persons appointed by the Company’s Board of Directors (the “Board”), all of whom shall be “outside directors” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and related Treasury regulations, shall be “non-employee directors” as defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and shall be “independent directors” as defined in NASDAQ Marketplace Rule 4200(15), as amended.

      (b) Committee Authority and Determinations. The Committee shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan, (ii) determine the timing and amount of the grants made to each such individual, the grant price, conditions relating to transferability or forfeiture, vesting or settlement of awards, the duration of any applicable restrictions or exercise periods, and any waiver, acceleration or expiration of such restrictions or exercise periods based in each case on such considerations as the Committee will determine including, but not limited to, a change in control, and (iii) make all determinations about any other matters under the Plan. The Committee shall have full power to administer the Plan, make factual determinations, and adopt or amend such rules, agreements and instruments for implementing the Plan and for conducting its business as it deems advisable, in its sole discretion. All the Committee’s determinations under the Plan shall be binding on anyone having any interest in the Plan or any grants under it. All the Committee’s powers shall be executed in the Company’s best interest, not as a fiduciary, and in keeping with the Plan’s objectives. The Committee’s determinations under the Plan need not be uniform as to similarly situated individuals.

      Section 1.2 Grants . Awards under the Plan will consist only of grants of stock appreciation rights (“SARs”), as described in Article II (“Grants”). All Grants shall be subject to the terms and conditions stated herein and such other terms or conditions consistent with the Plan as the Committee deems appropriate and specifies in writing in a grant instrument (the “Grant Instrument”) or an amendment to it. The Committee shall approve the form and provisions of each Grant Instrument. Grants under the Plan need not be uniform among the grant recipients (the “Grantees”).

      Section 1.3 Eligibility for Participation . All employees of the Company, its parent and its subsidiaries (“Employees”), including Employees who are officers or members of the Board shall be eligible to participate in the Plan.

ARTICLE II

STOCK APPRECIATION RIGHTS

      Section 2.1 Exercise Price . The Committee shall establish the exercise price of the SAR at the time it is granted which shall be equal to the Fair Market Value (as defined in Section 2.4 below) of one share of the Company’s common stock, par value $0.01 (a “Share”).

      Section 2.2 Exercisability . A SAR shall be exercisable during the period specified by the Committee in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Grantee is an Employee or during an applicable period after the Employee’s separation from service as specified in the Grant Instrument. No SAR may be exercised by an executive officer or director of the Company or any of its subsidiaries who is subject to Section 16 of the Exchange Act, except in accordance with Rule 16b-3 under the Exchange Act.

      Section 2.3 Value of SARs . When a Grantee exercises a SAR, the Grantee shall receive in settlement of such SAR an amount, payable in cash only, equal to the amount by which the Fair Market Value of a Share (as defined in Section 2.4 below) on the date of exercise of the SAR exceeds the exercise price of the SAR specified in the Grant Instrument.

      Section 2.4 Fair Market Value of a Share . The “Fair Market Value per Share” shall be:

      (a)  If the Shares are publicly traded and the principal trading market for the Shares is a national securities exchange or the Nasdaq National Market, the last reported sale price thereof on the preceding date or, if there were no trades on that date, the latest preceding date upon which a sale was reported;

      (b)  If the Shares are publicly traded but the Shares are not principally traded on such exchange or market, the mean between the last reported “bid” and “asked” prices of a Share on the preceding date, as reported on Nasdaq National Market or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Committee determines; or

      (c)  If the Shares are not publicly traded or, if publicly traded but the Shares have not been traded for 10 trading days, or the Shares are not subject to reported transactions or “bid” or “asked” quotations as set forth above, the Fair Market Value per Share shall be as reasonably determined in good faith by the Committee using reasonable valuation methods and procedures.

      Section 2.5 Adjustments for Significant Events . If there is any change in the number or kind of outstanding Shares by reason of (a) a dividend, spin-off, recapitalization, split or combination or exchange of Shares, (b) a merger, reorganization or consolidation in which the Company is the surviving corporation, (c) a reclassification or change in par value, or (d) any other unusual event affecting the Company’s outstanding Shares as a class without the Company’s receiving consideration, the number of Shares covered by outstanding Grants and the exercise price of a SAR may be appropriately adjusted in the sole discretion of the Committee.

ARTICLE III

GENERAL MATTERS

      Section 3.1 Amendment and Termination of the Plan . The Board may amend or terminate the Plan at any time in accordance with applicable law; provided that the Board may not amend the Plan without the approval of the shareholders, if such shareholder approval is required by applicable law or exchange rules. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or the amendment is required by applicable law. The termination of the Plan shall not impair the Committee’s authority over an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended pursuant to the Plan or agreement of the Company and the Grantee consistent with the Plan. The Plan shall be the controlling document. No other statements or representations, oral or written, may amend the Plan. The Plan shall be binding upon the Company, its successors and assigns.

      Section 3.3 Miscellaneous .

      (a) Funding. The Plan shall be unfunded. In no event shall interest be paid or accrued on any Grant or any unpaid installments of Grants.

      (b) Rights of Participants. Nothing in the Plan shall entitle any Employee or other person to any Grant under the Plan. Neither the Plan nor any action taken under it shall give any individual any right to be retained or employed by the Company.

      (c) Tax Withholding. The Company or any affiliate is authorized to withhold from any payment relating to a SAR or any payroll or other payment to a Grantee, amounts or withholding and other taxes due with respect to a SAR, its exercise, or any payment thereunder, and to take such other action as the Committee may deem necessary or advisable to enable the Company and Grantee to satisfy obligations for the payment of withholding taxes and other tax liabilities relating to any SAR.

      (d) Effective Date. The Plan shall be effective immediately upon approval by the Board.

      (e) Grants Outside of the Plan. Nothing in the Plan shall limit the Company’s right to grant other compensation awards outside of this Plan.

      (f) Compliance with Law. The Plan and the obligations of the Company to issue Grants shall be subject to all applicable laws and approvals required by any regulatory agency. With respect to persons subject to Section 16 of the Exchange Act, the Company intends that the Plan and all transactions under it comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with applicable law.

      (g) Successors. All the Company’s obligations under the Plan and awards granted under it shall be binding on any successor to the Company, whether by direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all the business or assets of the Company.

      (h) Governing Law. The validity, construction and effect of the Plan and Grant Instruments issued under it shall be governed in accord with the law of the State of Delaware.

Exhibit 99.2

Nanophase Technologies Corporation

Stock Appreciation Rights
Grant Agreement

Grant Date: _____________, _____

To: _________________________

We are pleased to notify you (“Grantee”) that Nanophase Technologies Corporation, a Delaware corporation (the “Company”), has granted to you ___Stock Appreciation Rights (“SARs”) under the 2006 Stock Appreciation Rights Plan (the “Plan”) at an exercise price of $  per SAR (the “Exercise Price”), subject to the terms and conditions of the Plan and of this Agreement as set forth below. Any capitalized terms not otherwise defined in the Agreement shall have the same meanings set forth in the Plan.

1.

Term and Exercise of SARs. Subject to the provisions of the Plan and this Agreement, the SARs shall vest and may be exercised by you during the term hereunder on or prior to the tenth anniversary of the Grant Date (the “Last Exercise Date”) as follows:

     Subject to the provisions of Paragraph 2 below and the provisions of the Plan, any portion of the vested SARs that you do not exercise shall accumulate and can be exercised by you any time prior to the Last Exercise Date.

SARs may be exercised by delivering to the Secretary of the Company a written Notice of Intention to Exercise in the form attached hereto as Exhibit A signed by you and specifying the number of SARs you desire to exercise. As a holder of SARS, you shall never be deemed to have the rights of a shareholder with respect to the SARs. Upon such exercise, the Company shall promptly pay to Grantee, in a single lump sum cash payment, the amount by which the Fair Market Value per Share (as defined in the Plan) exceeds the Exercise Price of each such exercised SAR.

2.

Termination of Status. The grant of SARs hereunder is a separate incentive and is not in lieu of salary or other compensation. SARs granted hereunder do not vest you with any right to continue your status as an employee or member of the Board of the Company, nor is the termination of your status in any way restricted by this Agreement. Upon a Termination of Service, unvested SARs will terminate and vested SARs will remain exercisable, if at all, subject to certain restrictions as follows:

(i)

a SAR may only be exercised while the Grantee is an employee or member of the Board. In the event that a Grantee has a Termination of Service (as defined below)

for any reason other than Disability (as defined below), death or Cause (as defined below), any SAR which is otherwise exercisable by the Grantee shall terminate unless exercised within 90 days after the date of such termination, but in any event no later than the Last Exercise Date.

(ii)

In the event the Grantee has a Termination of Service on account of a termination for Cause by the Company, unless otherwise determined by the Committee any SARs held by the Grantee shall terminate as of the date of such Termination of Service.

(iii)

In the event the Grantee has a Termination of Service on account of Disability, any SARs which is otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date of such Termination of Service, but in any event no later than the Last Exercise Date.

(iv)

If the Grantee dies while an employee or member of the Board or within 90 days after the date on which the Grantee has a Termination of Service, any SARs that are otherwise exercisable by the Grantee shall terminate unless exercised within one year after the date of such death or Termination of Service (or within such other period of time as may be specified by the Committee), but in any event no later than the Last Exercise Date.

(v)

For purposes of this Agreement:

(A)

“Cause” shall mean, except to the extent specified otherwise by the Committee, a finding by the Committee that (1) the Grantee has breached his or her employment, service, noncompetition, nonsolicitation or other similar contract with the Company or its parent and subsidiary corporations, (2) has been engaged in disloyalty to the Company or its parent and subsidiary corporations, including, without limitation, fraud, embezzlement, theft, commission of a felony or dishonesty in the course of his or her employment or service, (3) has disclosed trade secrets or confidential information of the Company or its parents and subsidiary corporations to persons not entitled to receive such information or (4) has entered into competition with the Company or its parent or Subsidiary Corporations. Notwithstanding the foregoing, if the Grantee has an employment agreement with the Company defining “Cause,” then such definition shall supersede the foregoing definition.

(B)

“Disability” shall mean a Grantee’s becoming disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code (the “Code”). Notwithstanding the foregoing, if the Grantee has an employment agreement with the Company defining “Disability,” then such definition shall supersede the foregoing definition.

(C)

“Termination of Service” shall mean a Grantee’s termination of employment or service as an employee or member of the Board (so that, for purposes of the Plan, cessation of service as an employee or member of the Board shall not be treated as a Termination of Service if the Grantee continues without interruption to serve

thereafter in another one (or more) of such other capacities) unless the Committee determines other wise.

3.

Non-Transferability of SARs. Grants of SARs hereunder are not transferable and may be exercised only by you. Any purported transfer or assignment of SARs shall be void and of no effect, and shall give the Company the right to terminate the SARs granted hereunder as of the date of such purported transfer or assignment. No transfer of any beneficial economic interest as described above by you by operation of law shall be effective unless the Company shall have been furnished with written notice thereof, and such other evidence as the Board of Directors may deem necessary to establish the validity of the transfer and conditions of the SARs hereunder, and to establish compliance with any laws or regulations pertaining thereto.

     4.  Reorganization or Change in Control of the Company .

(i)

Definitions.

(A)

As used herein, a “Reorganization” shall be deemed to have occurred if the shareholders of the Company approve (or, if shareholder approval is not required, the Board approves) an agreement providing for (i) the merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote), (ii) the sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company.

(B)

As used herein, a “Change of Control” shall be deemed to have occurred if any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended) or any of its subsidiaries or affiliates becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing a majority of the voting power of the then outstanding securities of the Company except where the acquisition is approved by the Board.

(ii)

Assumption of Grants. Upon a Reorganization where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), this Grant Agreement shall be assumed by, or replaced with comparable options or rights by, the surviving corporation.

(iii)

Notice and Acceleration. Upon a Reorganization or a Change of Control, (A) the Company shall provide Grantee written notice of such event, and (B) this Grant shall automatically accelerate and become fully exercisable.

5.

Disputes. Any dispute which may arise under or as a result of or pursuant to this Agreement shall be finally and conclusively determined in good faith by the Board of Directors of the Company in its sole discretion, and such determination shall be binding upon all parties. In the event of an inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall control.

6.

Amendment; Waivers . This Agreement contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof and may not be modified or amended, nor may any provision hereof be waived, except by a further written agreement duly signed by each of the parties. The waiver by either of the parties hereto of any provision hereof in any instance shall not operate as a waiver of any other provision hereof or in any other instance.

7.

Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns.

8.

Governing Law; Venue . This Agreement shall be interpreted as a Delaware contract and is intended to be governed by the laws of said state, without the application of the choice of law provisions of such or any other state. Each party hereby (a) submits to personal jurisdiction in the State of Illinois as the exclusive venue for the enforcement of this Agreement, (b) waives any and all personal rights under the laws of any state to object to jurisdiction within the State of Illinois for the purposes of litigation to enforce this Agreement, and (c) consents to be sued in the United States District Court for the Northern District of Illinois and all courts of general jurisdiction of the State of Illinois. The parties agree that any litigation regarding this Agreement shall be brought only in the United States District Court for the Northern District of Illinois or the state courts located in Cook County, Illinois.

9.

Construction . The titles of the sections of this Agreement are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires.

10.

Notices . Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered in hand or by facsimile or sent by registered mail, postage prepaid, to the party addressed as follows, unless another address has been substituted by notice so given:

11.

Entire Agreement . This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Grantee with respect to the subject matter hereof.

12.

Counterparts . This Agreement may be executed in one or more counter-parts, which shall together constitute one agreement.

[Signature Pages to Follow]

      IN WITNESS WHEREOF , the undersigned have executed this Grant Agreement as of the dates set forth below.

     I have carefully read the foregoing Agreement and the Company’s 2006 Stock Appreciation Rights Plan, a copy of which has been provided to me, and agree to be bound by the terms of this Agreement and such Plan.

EXHIBIT A

EXERCISE NOTICE

Nanophase Technologies Corporation
1319 Marquette Drive
Romeoville, Illinois 60446
Attn: Chief Financial Officer

                     Re:     Exercise of Stock Appreciation Right

Gentlemen:

     Subject to the terms and conditions of the Grant Agreement between the undersigned and Nanophase Technologies Corporation (the “Company”) with a _________, 20___ grant date (the “Agreement”), please take notice that the undersigned hereby elects to exercise the Stock Appreciation Rights granted to Grantee pursuant to the Agreement by and to the extent of ______ Stock Appreciation Rights at an Exercise Price of $  ______ per SAR.

     The undersigned hereby agrees that amounts may be withheld by the Company to satisfy any obligation to withhold taxes in connection with the payments relating to such exercise in accordance with the Agreement and the Plan (as defined in the Agreement).

     The undersigned hereby acknowledges that the exercise of these Stock Appreciation Rights is irrevocable and effective on the date the Company has received this Exercise Notice.

Date: