QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.26    
    


 
 

TRANSOMA MEDICAL, INC.
  SUMMARY OF TEAM INCENTIVE PLAN II    
    


        In fiscal 2007, we provided our named executive officers with the opportunity to earn additional cash incentive compensation through our Team Incentive
Plan II, or "TIP." The TIP is designed to reward named executive officers for achieving and surpassing specified company and divisional objectives related to financial growth, product
development and commercialization and operational improvement. 


        Under
the terms of the TIP, our named executive officers, as well as other executives are eligible to earn annual cash incentive payments based on achievement of these company and
divisional objectives. We derive these objectives from our overall fiscal year operating plan. The objectives are established by our board of directors, based upon the recommendations of our chief
executive officer and senior management. Our objectives take into account a variety of factors, including our prior year results, our expected economic and market influences, our business
opportunities, investment requirements and competitive situation. Each executive may have three to six individual objectives in a given fiscal year. The objectives and their relative weighting are
assigned to each executive based upon his potential to impact achievement of each objective and the importance of the objective to creating stockholder value. We believe the objectives are moderately
aggressive to aggressive, but attainable by strong performance. 


        In
certain circumstances, we will delay setting specific and measurable criteria that describe in detail the planned achievement for an objective until later in the year, when adequate
and relevant information becomes available such that a meaningful, objective goal can be established. Also, if there is a material unanticipated event, such as an acquisition, we may adjust the
objectives to reflect the event. The compensation committee must approve any proposed adjustment. Our compensation committee retains the discretion to increase or decrease a named executive officer's
TIP award payout, with input from the chief executive officer, to recognize either inferior or superior individual performance in cases where this performance is not fully represented by the
performance measures. 


        For
fiscal 2007, rewards under the TIP were based on two tiers of specific objectives, each of which represented 50% of the potential TIP reward to the executives. The first tier related
to the 










following
high level initiatives that required significant contributions from our employees across the company: 



	Tier I Objectives
 
	 	Weight
	 
	DSI fiscal 2007 sales of at least $36 million	 	25	%
	 	 Full incentive available for sales of at least $39 million.	 	 	 
	 	 Incentive earned adjusted proportionally for sales between $36 and $39 million.	 	 	 
	Achievement of DSI modified net income targets	 	10	%
	 	 Full incentive available for modified net income of at least $19.3 million.	 	 	 
	 	 Incentive earned adjusted proportionally for modified net income between $18.0 million and $19.3 million.	 	 	 
	 	 For each $100,000 in DSI modified net income earned in excess of the established target, an additional $10,000 was to be added to the incentive pool. Had this objective been achieved in excess of the target,
the incentive pool would have been allocated among all eligible exempt employees (including our named executive officers but excluding DSI sales employees) based on each participant's eligible wages as a percentage of the total of eligible wages for
all participants.	 	 	 
	Achievement of specified DSI revenue subtargets and development milestones relating to next generation of DSI products	 	10	%
	Achievement of specified development milestones relating to PMD products	 	35	%
	 	 Incentives earned based on clinical trial, platform development and regulatory milestones.	 	 	 
	Implementation of ERP system within specified time and performance parameters	 	20	%





        The
second tier of TIP objectives was more specific to the responsibilities of small groups and individuals. Many of these objectives were instrumental towards achieving the first tier
objectives: 



	Tier II Objectives
 
	 	Weight
	 
	Brian P. Brockway	 	 	 
	 	On-time Sleuth 510(k) submission	 	15	%
	 	Achievement of Sleuth revenue targets	 	15	%
	 	Public offering preparations	 	30	%
	 	Completion of Series C financing	 	30	%
	 	Strengthening of intellectual property portfolio	 	10	%
	Charles T. Coggin	 	 	 
	 	Achievement of DSI modified net income targets(1)	 	20	%
	 	Implementation of ERP system within specified time and performance parameters	 	20	%
	 	Achievement of manufacturing cost containment efforts	 	10	%
	 	Public offering preparations	 	25	%
	 	Completion of Series C financing	 	25	%
	Lance H. Wallin	 	 	 
	 	DSI fiscal 2007 sales of at least $36.0 million(1)	 	35	%
	 	Achievement of DSI modified net income targets(1)	 	10	%
	 	Achievement of specified DSI revenue subtargets	 	30	%
	 	Achievement of development milestones relating to next generation of DSI products	 	15	%
	 	Completion of Series C financing	 	10	%
	Jay G. Johnson	 	 	 
	 	Achievement of product and component release deadlines	 	15	%
	 	Achievement of development milestones relating to next generation of DSI products	 	15	%
	 	Integration of acquired technology	 	5	%
	 	On-time Sleuth 510(k) submission	 	40	%
	 	Achievement of development milestones relating to future PMD products	 	20	%
	 	Strengthening of intellectual property portfolio	 	5	%









	Nestor Jaramillo	 	 	 
	 	Execution of Sleuth post market study within specified time and performance parameters	 	20	%
	 	Achievement of Sleuth revenue targets	 	25	%
	 	Achievement of development milestones relating to future PMD products	 	10	%
	 	Development of processes for Sleuth regulatory compliance	 	5	%
	 	Attainment of PMD division customer-focused metrics	 	20	%
	 	Execution of Sleuth Panama study within specified time and performance parameters	 	20	%






	(1)
	See
the Tier I objectives for a full description of this objective. 



        The
committee believes that the 50/50 weighting between company-wide and individual objectives balances the executives' focus (and rewards) between those objectives that have
the most significant impact on stockholder value and those over which the executives have the most influence. Attainment of the maximum reward is possible, but requires strong performance of each of
the executives and employees throughout the company. 


        The
annual cash incentive payments available under the TIP are percentage-based, relative to each executive's base salary. The target bonus percentages were established based on each
executive's position within the company and level of responsibility, and our compensation committee's judgment and experience as to what percentage level would provide sufficient incentive to our
executives and positively impact their performance. Executives with broader levels of responsibility and influence on
achieving goals that create stockholder value have a higher potential to earn incentive payments under the TIP. 











QuickLinks



Exhibit 10.26


TRANSOMA MEDICAL, INC. SUMMARY OF TEAM INCENTIVE PLAN II