NIMBLEGEN SYSTEMS INC.

AWARD AGREEMENT

This Award Agreement, entered into as of August 27, 2003, is between NimbleGen Systems Inc., a Delaware corporation (the Company), and Thomas Palay (the Participant). All terms used herein and not otherwise defined shall have the same meaning as set forth in the Companys 2000 Stock Option and Restricted Stock Plan (the Plan).

WITNESSETH:

WHEREAS, the Board of Directors of the Company (the Board) desires to induce the Participant to provide services to the Company, to provide the Participant with a stronger incentive to strive for the continued success and growth of the Company and to further align the participants interests with those of the Companys stockholders.

NOW THEREFORE, in consideration of the benefits that the Company expects to be derived in connection with the services to be hereafter rendered by the Participant, the Company and the Participant hereby agree as follows:

ARTICLE I

Award of Option for Restricted Stock

1.1. Option; Number of Shares; Option Price. The Participant is granted the right and option to purchase (the Option) all or any part of an aggregate of 128,544 shares of the Companys Common Stock (individually, a Share and jointly, the Shares) at the purchase price of $1.28 per Share (the Option Price) any time before the tenth anniversary of the date of this Award Agreement. If the Participant exercises the Option prior to February 5, 2007, the shares of Common Stock received from the exercise of the Option that are unvested shares according to the schedule set forth in Section 1.2 are hereafter referred to as Restricted Shares and Shares that have vested are referred to as Vested Shares. The period during which there are Restricted Shares outstanding is referred to herein as the Restricted Period. If the Option remains outstanding and is exercised on or after the fourth anniversary of the date of this Award Agreement, all of the Shares will be Vested Shares and none of the Shares will be Restricted Shares.

1.2. Vesting of Restricted Shares. The vesting schedule for the Shares governed by this Option is as follows. As of the date of this Award Agreement, the Option is vested as to 16,068 Shares. Except as otherwise provided in the Plan or this Award Agreement, the Option will vest as to 1/48^th of the Shares on the fifth day of each calendar month beginning with September 5, 2003, provided the period of engagement (the Engagement Period) specified in that certain Agreement of even date between the Company, Robert Palay and Thomas Palay has not previously terminated as of any such vesting date. Shares vest according to this schedule, whether or not the Option has been exercised.

1.3. Exercisability of Option. The Option is immediately exercisable and will remain exercisable until the end of the Engagement Period. In addition, following termination of the Engagement Period, the Option will remain exercisable to the extent vested until the tenth

anniversary of the date of this Award Agreement. However, upon termination of the Engagement Period, the Option will expire to the extent unvested.

1.4. Method of Exercising Option. The Option may be exercised in whole or in part by delivery to the Company, at its offices in Madison, Wisconsin, of (a) written notice identifying the Option and stating the number of Shares with respect to which it is being exercised, in the form attached hereto as Exhibit A, (b) payment in full of the Option Price of the Shares then being acquired in the form permitted by Section 8 of the Plan, (c) execution of a stockholder agreement substantially in the form attached hereto as Exhibit B (Stockholder Agreement), (d) execution of an Investment Representation Statement in the form attached hereto as Exhibit C if the Shares covered by the Option have not been registered under the Securities Act of 1933, as amended, at the time of the exercise and (e) if the Option is exercised during the Restricted Period as defined in Section 1.1, a blank stock power for the Restricted Shares. The Company shall have the right to delay the issue or delivery of any Shares to be delivered hereunder until (a) the completion of such registration or qualification of such Shares under federal, state or foreign law, ruling or regulation as the Company shall deem to be necessary or advisable, and (b) receipt from the Participant of such documents and information as the Company may deem necessary or appropriate in connection with such registration or qualification or the issuance of Shares hereunder.

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