<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended September 30, 1999

                         Commission File Number: 0-23856

                       TRANSACTION NETWORK SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                                    DELAWARE
            (State or jurisdiction of incorporation or organization)

                                   54-1555332
                     (I.R.S. Employer Identification Number)

                            1939 ROLAND CLARKE PLACE
                                RESTON, VA 20191
                    (Address of principal executive offices)

                                 (703) 453-8300
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. /X/ Yes  / / No


     Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.

                   Shares Outstanding as of November 10, 1999
               14,747,787 Shares of Common Stock, $0.01 par value






                                  Page 1 of 38

<PAGE>

                          PART I -FINANCIAL INFORMATION

Item 1.  Financial Statements

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                      SEPTEMBER 30,     DECEMBER 31,
                                                         1999               1998
                                                      ------------      --------------
                                                      (UNAUDITED)
<S>                                                   <C>               <C>
                                       ASSETS
CURRENT ASSETS:
      Cash and cash equivalents                          $ 27,241            $ 12,339
      Short-term investments                                  125               3,092
      Accounts receivable, net                             30,015              28,836
      Other current assets                                  8,738               5,477
                                                      ------------      --------------
          Total current assets                             66,119              49,744
                                                      ------------      --------------
EQUIPMENT, at cost:
      Network equipment                                    60,420              47,296
      Office equipment                                     13,562               7,381
      Less - Accumulated depreciation                     (29,775)            (20,897)
                                                      ------------      --------------
                                                           44,207              33,780
                                                      ------------      --------------
INTANGIBLE ASSETS:
      Software and intangibles                            101,093              93,404
      Less - Accumulated amortization                     (15,241)             (8,989)
                                                      ------------      --------------
                                                           85,852              84,415
                                                      ------------      --------------
OTHER  ASSETS                                               1,799               1,142
LONG-TERM INVESTMENTS                                       3,346               3,404
INVESTMENT IN UNCONSOLIDATED AFFILIATE                          -               2,374
                                                      ============      ==============
          Total assets                                  $ 201,323           $ 174,859
                                                      ============      ==============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts payable and accrued expenses              $ 23,848            $ 28,532
LONG-TERM DEBT                                             62,883              59,325
OTHER                                                         617                 402
MINORITY INTEREST                                               -               2,423
                                                      ------------      --------------
          Total liabilities                                87,342              90,682
                                                      ------------      --------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY :
      Common stock, $0.01 par value, 20,000 shares
          authorized, 14,170 and 13,191 shares
          issued, respectively                                142                 128
      Additional paid-in capital                           78,371              57,487
      Unearned compensation                                     -                 (16)
      Retained earnings                                    36,160              26,523
      Foreign currency translation                           (698)                 55
                                                      ------------      --------------
          Total stockholders' equity                      113,981              84,177
                                                      ------------      --------------
          Total liabilities and stockholders' equity    $ 201,323           $ 174,859
                                                      ============      ==============
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                       2

<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (in thousands, except per share amounts)



<TABLE>
<CAPTION>

                                                              Three Months Ended                Nine Months Ended
                                                                 September 30,                    September 30,
                                                         -----------------------------   -----------------------------
                                                            1999              1998           1999            1998
                                                         -----------       -----------   -------------   -------------
<S>                                                      <C>               <C>           <C>             <C>
Revenues                                                   $ 46,127          $ 25,582        $126,954        $ 64,092
Cost of network services                                     24,513            15,175          75,413          37,049
                                                         -----------       -----------   -------------   -------------
Gross profit                                                 21,614            10,407          51,541          27,043
                                                         -----------       -----------   -------------   -------------

Other operating expenses:
      Engineering & development                               1,735             1,370           4,662           3,538
      Selling, general & administrative                       5,611             3,152          14,631           8,337
      Depreciation                                            2,732             1,805           7,812           4,792
      Amortization of intangibles                             2,019             1,031           6,205           2,123
      Reserve for AMNEX assets (Note 2)                           -                 -             919               -
                                                         -----------       -----------   -------------   -------------
Total other operating expenses                               12,097             7,358          34,229          18,790
                                                         -----------       -----------   -------------   -------------

Income from operations before provision for
      income taxes, equity in earnings of
      affiliate and minority interest                         9,517             3,049          17,312           8,253

Interest expense                                             (1,126)                -          (3,051)              -
Interest income and other                                       379                54           1,253             910
                                                         -----------       -----------   -------------   -------------
Income before provision for income taxes                      8,770             3,103          15,514           9,163

Provision for income taxes                                    3,290             1,202           5,842           3,597

Equity in earnings of unconsolidated affiliate                    -               178              93             259
Minority interest in net income of
      consolidated subsidiary                                     -                20            (128)             20
                                                         -----------       -----------   -------------   -------------

Net income                                                  $ 5,480           $ 2,099           9,637         $ 5,845
                                                         ===========       ===========   =============   =============


 Diluted earnings per common share                         $ 0.38            $ 0.16         $ 0.69          $ 0.44
                                                         ===========       ===========   =============   =============

 Basic earnings per common share                           $ 0.41            $ 0.17         $ 0.73          $ 0.46
                                                         ===========       ===========   =============   =============

 Weighted average shares - diluted                           14,555            13,470          14,058           13,253
                                                         ===========       ===========   =============   =============

 Weighted average common shares - basic                      13,530            12,690          13,199           12,577
                                                         ===========       ===========   =============   =============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.

                                       3
<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                             NINE MONTHS
                                                                                          ENDED SEPTEMBER 30,
                                                                                          1999          1998
                                                                                       -----------   -----------
<S>                                                                                    <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                                                           $ 9,637       $ 5,845
     Adjustments to reconcile net income to net cash
         provided by operating activities:
         Depreciation and amortization                                                     14,017         6,915
         Stock option compensation                                                             16            22
         Equity in earnings of unconsolidated affiliate                                       (93)         (259)
         Deferred income taxes                                                                  -           (48)
         Income (Loss) applicable to minority interest                                        128           (20)
         Loss on disposals                                                                    145             -
         Reserve for AMNEX intangible assets (Note 2)                                         919             -
     Changes in assets and liabilities, net of impact of acquisitions:
            Accounts receivable                                                                16        (8,647)
            Other current assets                                                           (3,027)       (1,776)
            Other assets and liabilities                                                      215          (105)
            Accounts payable and accrued expenses                                          (8,725)        5,141
            Other assets                                                                       93             -
                                                                                       -----------   -----------
                Net cash provided by operating activities                                  13,341         7,068
                                                                                       -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of equipment                                                           (16,169)      (11,462)
         Purchases of intangible assets                                                    (3,010)            -
         Acquisitions, net of cash acquired                                                 2,214       (71,219)
         Investment in affilliate                                                          (2,551)       (1,959)
         Maturities of short-term investments                                               2,967         3,172
         Maturities (Purchases) of long-term investments                                        8         1,116
                                                                                       -----------   -----------
            Net cash used in investing activities                                         (16,541)      (80,352)
                                                                                       -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from options and employee stock purchase plan                            16,806           995
         Repayment of long-term debt                                                       (5,626)            -
         Proceeds from long-term debt borrowings                                            7,675        64,325
                                                                                       -------------------------
            Net cash provided by financing activities                                      18,855        65,320
                                                                                       -------------------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                      (753)          213
NET  INCREASE (DECREASE) IN CASH AND CASH
            EQUIVALENTS                                                                    14,902        (7,751)
CASH AND CASH EQUIVALENTS, beginning of period                                             12,339        18,516
                                                                                       ===========   ===========
CASH AND CASH EQUIVALENTS, end of period                                                 $ 27,241      $ 10,765
                                                                                       ===========   ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Cash paid for income taxes                                                       $ 2,568        $4,221
                                                                                       ===========   ===========
         Cash paid for interest                                                           $ 1,247           $ -
                                                                                       ===========   ===========
         Fair value of assets acquired                                                    $ 7,496      $ 77,208
         Less:  cash paid, net                                                              2,214       (71,219)
                   value of stock issued                                                   (4,160)       (5,250)
                                                                                       ===========   ===========
         Liabilites assumed                                                               $ 5,550         $ 739
                                                                                       ===========   ===========
         Cancellation of note receivable in exchange for assets                                         $ 1,905
                                                                                                     ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                        4


<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (UNAUDITED)

1.  GENERAL

         Transaction Network Services, Inc. (the "Company" or "TNS") was
incorporated in August 1990 to build and operate a communications network
focused on the network services needs of the POS
(Point-of-Sale/Point-of-Service) transaction processing industry. The Company
currently operates four divisions: (1) the POS Division which includes the
Company's TransXpress-Registered Trademark- network services for the POS
transactIon processing industry, (2) the Telecom Services Division ("TSD") which
includes the Company's CARD*TEL-Registered Trademark- telephone call billing
validation and fraud control services and other services targeting primarily the
telecommunications industry, (3) the Financial Services Division ("FSD") which
provides TNS FastLink-Registered Trademark- Data Services in support of the
Financial Information eXchange ("FIX") messaging protocol and other transaction
oriented trading applications primarily to the financial services community, and
(4) the International Systems Division ("ISD") which markets the Company's
products and services internationally.

         The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and include, in
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes that its disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The results of operations for the three
and nine month periods ended September 30, 1999 are not necessarily indicative
of the results to be expected for the full year.


2. ACQUISITIONS AND OTHER ASSETS

SUNTECH PROCESSING SYSTEMS, LLC

         On February 27, 1998, the Company acquired certain assets and assumed
certain liabilities of SunTech Processing Systems, LLC ("SunTech"), a Texas
limited liability company. The total consideration paid after arm's-length
negotiations was $17.5 million, composed of (a) $12.25 million in cash, and (b)
287,474 shares of the Company's common stock valued at $5.25 million. Prior to
the acquisition, SunTech was primarily engaged in the business of providing
transaction processing services for automated teller machines ("ATMs") and
developing additional communications technologies for ATMs. The Company acquired
SunTech's dial-up ATM transaction processing segment (the "Processing Business")
and SunTech's proprietary host-interface processing ("HIP") technology segment,
which allows for leased line ATMs to be converted into dial-up ATMs. On July 23,
1998, the Company sold the Processing Business for $6.0 million in cash and
other assets. The SunTech acquisition is being accounted for as a purchase.
Amounts allocated to intangible assets (including customer contracts,
non-compete agreements, software and goodwill) in the purchase accounting are
being amortized on a straight-line basis over periods ranging from 2 to 10
years.

                                       5
<PAGE>



SWITCHTRAN LIMITED

         In April 1998, the Company, through its majority owned Irish subsidiary
Transaction Network Services Limited ("TNSL"), acquired a 50% interest in Atos
Ireland Limited for approximately $2.0 million. Atos Ireland Limited has been
renamed Switchtran Limited ("Switchtran"). Switchtran provides processing
services, primarily for cash withdrawals, made from a network of ATM's located
throughout Ireland. Prior to the acquisition, Atos Ireland Limited was a
wholly-owned subsidiary of Sligos Payment Services PLC ("SPS"), which in turn is
a majority-owned subsidiary of the Atos Group, a computer services company based
in France. Under the terms of the acquisition, SPS was granted an option to sell
its 50% interest in Switchtran to TNSL. In March 1999, SPS notified TNSL that
they had elected to exercise their option. The exercise price was approximately
$1.7 million and effective April 1, 1999 the Company began consolidating the
results of Switchtran. The Switchtran acquisition is being accounted for as a
purchase. Amounts allocated to intangible assets (goodwill) in the purchase
accounting are being amortized on a straight-line basis over a period of 10
years. Prior, to the Company's acquisition of SPS' 50% interest, Switchtran was
accounted for under the equity method of accounting.

OMNILINK COMMUNICATIONS CORPORATION

         On July 1, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of OmniLink Communications Corporation
("OmniLink"), a Michigan corporation. OmniLink develops, manufactures and
markets modems and ISDN terminal adaptors for electronic commerce, Internet
access, telecommuting and advanced office communications. The Company has
transferred its dial-up modem technology acquired from SunTech to OmniLink. The
consideration paid to OmniLink, after arm's-length negotiations, was $2.5
million which was composed of (a) approximately $600,000 in cash, and (b)
approximately $1.9 million by cancellation of a note payable from OmniLink to
the Company. The OmniLink acquisition is being accounted for as a purchase.
Amounts allocated to intangible assets (goodwill) in the purchase accounting are
being amortized on a straight-line basis over a period of 10 years

AT&T CORP.'S TRANSACTION ACCESS SERVICE

         On September 10, 1998, the Company acquired from AT&T Corp. ("AT&T")
the right to provide services under certain customer service contracts relating
to AT&T's Transaction Access Service ("TAS") as well as certain equipment used
by AT&T in furnishing this service. The consideration paid for these assets
after arm's-length negotiations was approximately $64.3 million in cash, plus
direct acquisition costs. The source of the funds used to acquire these assets
was a revolving credit facility (the "Revolver") obtained in connection with
this transaction. The Company purchased communication and other transitional
services from AT&T until all of the TAS customers were migrated from the TAS
network to the TNS network. The final TAS customers were migrated to the TNS
network on or about September 15, 1999.

         The TAS acquisition is being accounted for as a purchase. Amounts
allocated to intangible assets (including customer contracts, a non-compete
agreement, and goodwill) in the purchase accounting are being amortized on a
straight-line basis over periods ranging from 3 to 20 years. The purchase price
allocations have been completed on a preliminary basis and are subject to
adjustment, should new or additional facts about the business become known.


                                       6
<PAGE>



TRANSLINE COMMUNICATIONS, INC.

         In December 1998, the Company entered into an agreement and plan of
merger with TransLine Communications, Inc. ("TransLine"), which closed on
January 13, 1999. TransLine's core business is comprised of managed private,
secure voice and data services provided to financial institutions in connection
with futures, options, and commodities trading. Under the agreement the
TransLine shares were exchanged for approximately $4.1 million in TNS common
stock, or 207,529 shares of TNS common stock based upon the closing price of TNS
shares ten days prior to the closing. An additional 5,112 shares were issued as
consideration for certain transaction fees.

         The TransLine acquisition is being accounted for as a purchase. Amounts
allocated to intangible assets (including customer contracts and goodwill) in
the purchase accounting are being amortized on a straight-line basis over
periods ranging from 5 to 15 years. The purchase price allocations have been
completed on a preliminary basis and are subject to adjustment, should new or
additional facts about the business become known.

TRANSACTION NETWORK SERVICES (UK) LIMITED

         In September 1998 the Company entered into a joint venture named
Transaction Network Services (UK) Limited ("TNSUK") in the United Kingdom with
General Cable PLC. The Company purchased its 60% ownership interest in TNSUK for
approximately $4.0 million in cash. TNSUK utilizes the Company's network
technology, along with technology acquired in the acquisition of certain assets
of SunTech and OmniLink, to provide point-of-sale and other transaction services
in the UK. In August 1999 the Company acquired the remaining 40% interest in
TNSUK from its minority partner for approximately $5.1 million in cash. The
TNSUK acquisition is being accounted for as a purchase. Amounts allocated to
intangible assets in the purchase accounting are being amortized on a
straight-line basis over a period of 5 years. The purchase price allocations
have been completed on a preliminary basis and are subject to adjustment, should
new or additional facts about the business become known.


PRO FORMA FINANCIAL INFORMATION

         The unaudited pro forma information set forth below gives effect to
the TAS and TransLine transactions as though each had occurred on January 1,
1998. The results of TransLine for the period from January 1, 1999 until
closing on January 13, 1999, and the impact of the Switchtran transaction
were not material. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the acquisitions been consummated
as of that time (unaudited, 000's omitted):


<TABLE>
<CAPTION>

                                               Nine-Months Ended
                                               September 30, 1998
                                            ------------------------
<S>                                         <C>
         Revenues                                   $109,903
         Net income                                 $ 11,906
         Diluted earnings per share                 $   0.88
         Basic earnings per share                   $   0.93
</TABLE>

RESERVE FOR AMNEX ASSETS

         On March 29, 1996, the Company completed an asset purchase from AMNEX,
Inc. ("AMNEX") of AMNEX's proprietary fraud-control system and related databases
used to provide fraud control and billing validation services. The transaction
also included a ten-year exclusive service agreement and other agreements. The
Company paid approximately $1.5 million in cash for these assets.

         In December 1997, the Company entered into a consulting agreement with
AMNEX in exchange for certain revisions made to the exclusive service agreement.
The consulting agreement required an initial payment of

                                       7
<PAGE>

approximately $180,000 and monthly payments of approximately $33,000 through
June 30, 2002. In May 1998, the Company delivered a notice of default to AMNEX
for non-payment of fees under the exclusive service agreement and consulting
agreement. On July 29, 1998, the Company filed arbitration proceedings with the
American Arbitration Association against AMNEX. In January 1999, prior to the
commencement of the arbitration proceedings, the parties entered into a
settlement agreement. The settlement agreement required AMNEX to pay $530,000 of
accounts receivable, which was collected in 1999. AMNEX further agreed to pay
the Company $1.7 million, with interest, in 24 equal monthly installments
beginning in March 1999. Approximately $255,000 of these amounts were paid in
1999. In May 1999, AMNEX filed for bankruptcy protection. Management concluded
that the remaining AMNEX assets were impaired and the Company reserved the net
assets related to AMNEX remaining on its balance sheet. This reserve resulted in
a pre-tax non-cash accounting charge of $919,000 recorded during the three
months ended June 30, 1999.


3. CREDIT AGREEMENT

       In March 1999, due to market conditions, the Company and the Company's
primary lender agreed to temporarily reduce its Revolving Credit Facility (the
"Revolver") from $75 million to $62 million. In June 1999, the Revolver was
increased to its previous $75 million limit. The Revolver provides for unsecured
LIBOR or base rate borrowings at the Company's option. A margin is added to the
applicable LIBOR or base rate based upon the Company's ratio of total debt to
annualized operating cash flow, as defined in the Revolver. The interest rate at
September 30, 1999 was 6.31% and the weighted-average interest rate for the
three-month period ended September 30, 1999 was 6.25%. The LIBOR loan
outstanding at September 30, 1999 expired in October 1999 and the Revolver
matures in September 2001. Fair value approximated book value at September 30,
1999 due to the short-term maturity of the amount outstanding.

4. EARNINGS PER SHARE

         The following reconciles the shares used in the calculations of basic
and diluted earnings per share:

<TABLE>
<CAPTION>

                                                 Three Months Ended        Nine Months Ended
                                                    September 30,            September 30,
                                                1999          1998         1999         1998
                                              ----------   ----------   ----------   ----------
<S>                                           <C>          <C>          <C>          <C>
Weighted average shares outstanding - basic   13,529,812   12,690,391   13,199,409   12,576,744
Dilutive effect of  stock options              1,024,833      779,675      858,493      676,232
                                              ----------   ----------   ----------   ----------
Weighted average shares - dilutive            14,554,645   13,470,066   14,057,902   13,252,976
                                              ----------   ----------   ----------   ----------
Diluted earnings per share                    $     0.38   $     0.16   $     0.69   $     0.44
Basic earnings per share                      $     0.41   $     0.17   $     0.73   $     0.46
</TABLE>


4.  COMPREHENSIVE INCOME

The total of net income and all other non-owner changes in equity consists of
(unaudited, 000's omitted):

<TABLE>
<CAPTION>

                                                 Three Months Ended        Nine Months Ended
                                                    September 30,            September 30,
                                                1999          1998         1999         1998
                                              ----------   ----------   ----------   ----------
<S>                                           <C>          <C>          <C>          <C>
               Net Income                      $5,480        $2,099       $9,637       $5,845
               Other Comprehensive Income:
               Currency Translation                92           276         (521)        268
                                              ----------   ----------   ----------   ----------
               Comprehensive Income            $5,572        $2,375       $9,116       $6,113
                                              ----------   ----------   ----------   ----------
</TABLE>


                                       8
<PAGE>



5. SEGMENT INFORMATION

         The Company's reportable segments are strategic business units that
offer different products and services. The Company classifies its business into
four segments: the POS Division ("POS"), the Telecom Services Division ("TSD"),
Financial Services Division ("FSD") and the International Systems Division
("ISD"). FSD and ISD have not met the quantitative threshold for separate
reporting. The accounting policies for the segments are the same as those
described in the summary of significant accounting policies included in the
Company's 1998 Form 10-K. The Company evaluates performance based upon income
from operations before amortization and depreciation. Interim information on the
Company's business segments for the three and nine months ended September 30,
1999 and 1998 is presented below:

<TABLE>
<CAPTION>

                                                               Three Months Ended     Three Months Ended
                                                               September 30, 1999     September 30, 1998
                                                               ------------------     ------------------
<S>                                                            <C>                    <C>
REVENUE:
  POS                                                                $31,076                $16,404
  TSD                                                                  9,781                  7,925
  All others                                                           5,270                  1,253
                                                                     -------                -------
     Total Revenue                                                   $46,127                $25,582
                                                                     -------                -------
OPERATING PROFIT:
  POS                                                                $10,714                 $4,879
  TSD                                                                  3,254                  2,132
  All others                                                             300                 (1,124)
                                                                     -------                -------
     Total                                                           $14,268                 $5,887
                                                                     -------                -------
</TABLE>


<TABLE>
<CAPTION>

                                                               Nine Months Ended      Nine Months Ended
                                                               September 30, 1999     September 30, 1998
                                                               ------------------     ------------------
<S>                                                            <C>                    <C>

REVENUE:
  POS                                                               $88,202                $39,394
  TSD                                                                26,754                 21,740
  All others                                                         11,998                  2,958
                                                                   --------                -------
     Total Revenue                                                 $126,954                $64,092
                                                                   --------                -------

OPERATING PROFIT:
  POS                                                               $22,621                $12,225
  TSD                                                                 9,385                  5,278
  All others                                                            242                 (2,333)
                                                                   --------                -------
     Total                                                          $32,248                $15,170
                                                                   --------                -------
</TABLE>


                                       9

<PAGE>


Item 2.

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

         Certain information included in this document may be deemed to be
"forward looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. All statements, other than
statements of historical facts, that address activities, events or developments
that the Company intends, expects, projects, believes or anticipates will or may
occur in the future are forward looking statements. Such statements are
characterized by terminology such as "believe," "anticipate," "should,"
"intend," "plan," "will," "expects," "estimates," "projects," "positioned,"
"strategy," and similar expressions. These statements are based on assumptions
and assessments made by the Company's management in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes to be appropriate. These forward
looking statements are subject to a number of risks and uncertainties, including
but not limited to continuation of the Company's long standing relationships
with major customers and vendors, the Company's ability to integrate acquired
businesses and purchased assets into its operations and realize planned
synergies, the extent to which acquired businesses and assets are able to
meet the Company's expectations and operate profitably, the costs associated
with establishing the Company's own "800" access service, technological and
customer related issues associated with the migration of acquired businesses
to the Company's networks and infrastructure, the impact of future revisions
to the cost of the Company's network services under the Telecommunications
Act of 1996, competition, technological change, the ability to develop new
services, dependence on proprietary rights, dependence on key employees,
changes in government regulation, the impact of the Year 2000 issue,
seasonality and fluctuations in quarterly results. In addition, the Company
is subject to risks and uncertainties that affect the technology sector
generally including, but not limited to, economic, competitive, governmental
and technological factors affecting the Company's operations, markets,
products, services and prices. Any such forward looking statements are not
guarantees of future performances and actual results, developments and
business decisions may differ from those envisaged by such forward looking
statements. The Company disclaims any duty to update any forward looking
statements, all of which are expressly qualified by the foregoing. The
forward looking statements in Management's Discussion and Analysis do not
take into account the Company's proposed merger with PSINet Inc. and do not
address possible future results of operations of the Company and PSINet Inc.
after the merger.

PSINET PROPOSED ACQUISITION

         On August 22, 1999, the Company entered into a definitive agreement to
be acquired by PSINet Inc. ("PSINet"). Subject to the terms and conditions of
the merger agreement, the Company will merge with and into a wholly-owned
subsidiary of PSINet. At the effective time of the merger, the separate
corporate existence of the Company will end. PSINet's subsidiary will be the
surviving corporation in the merger and will continue its corporate existence as
a wholly-owned subsidiary of PSINet under the name "Transaction Network
Services, Inc." As consideration for the merger, the Company's shareholders will
receive, in the aggregate, approximately $351,204,507 in cash and approximately
7,804,546 shares of PSINet common stock. The Company's shareholders are
scheduled to vote on the merger agreement and the transactions contemplated in
that agreement on November 23, 1999.

RESULTS OF OPERATIONS

REVENUES

         Total revenues increased by 80% to $46,127,000 for the three-month
period ended September 30, 1999 from $25,582,000 for the same period in 1998 and
by 98% to $126,954,000 for the first nine months of 1999 from $64,092,000 for
the same period in 1998.

         POS services revenue increased by 89% to $31,076,000 from $16,404,000
for the three months ended September 30, 1999 versus the comparable period in
1998 and by 124% to $88,202,000 from $39,394,000 for the first

                                       10
<PAGE>

nine months of 1999 versus the same period in 1998. The growth in POS services
revenue resulted primarily from the transaction volume and associated revenue
related to the September 1998 acquisition of AT&T Corp's ("AT&T") Transaction
Access Service ("TAS") as well as an increase in transaction volume and
associated revenue from the Company's historical POS customers. POS transaction
volume increased by 76% to 1.6 billion transactions for the third quarter of
1999 from 907 million transactions in the third quarter of 1998. POS transaction
revenue per transaction was $0.019 for the three months ended September 30, 1999
and $0.016 for the comparable period in 1998. The increase in transaction
revenue per transaction is primarily attributed to the TAS acquisition as the
transaction revenue per transaction under the TAS contracts is greater than the
Company's average transaction revenue per transaction for its historical POS
customers.

         Telecommunications services revenue increased by 23% to $9,781,000 from
$7,925,000 for the three months ended September 30, 1999 versus the comparable
period in 1998 and by 23% to $26,754,000 from $21,740,000 for the first nine
months of 1999 versus the same period in 1998. The growth in revenue was
primarily due to growth in queries processed for the Company's
telecommunications customers and from an increase in other telecommunications
services revenues, including revenues from the Company's CARD*TEL-Registered
Trademark-, LEConnect-Registered Trademark-, SS7 and local number portability
services.

         Financial Services Division revenue increased by 187% to $1,876,000 for
the three months ended September 30, 1999 versus $662,000 for the same period in
1998 and by 325% to $5,183,000 from $1,285,000 for the first nine months of 1999
versus the same period in 1998. The growth in revenue was due to growth in the
number of customers and the associated connections to the Company's financial
services network and from revenues associated with the January 1999 TransLine
acquisition. The TransLine acquisition contributed $825,000 of revenues for the
three months ended September 30, 1999 and $2,443,000 for the first nine months
of 1999.

         International Systems Division revenue increased by 499% to $3,394,000
in the third quarter of 1999 compared to $591,000 for the same period in 1998
and by 300% to $6,815,000 from $1,673,000 for the first nine months of 1999
versus the same period in 1998. The increase is due to revenues associated with
Transaction Network Services (UK) Limited ("TNSUK"), revenues from Switchtran
Limited ("Switchtran"), and increases in royalties and software license fees.
TNSUK contributed $1,704,000 of revenue for the third quarter of 1999, and
$4,013,000 for the first nine months of 1999. Effective April 1, 1999 the
Company began consolidating the results of Switchtran after obtaining 100%
ownership through a put arrangement with the joint venture partner. Switchtran
contributed approximately $462,000 of revenues for the third quarter of 1999.
From the Company's April 1998 investment in Switchtran until March 31, 1999,
Switchtran's financial results were accounted for under the equity method of
accounting.

COST OF NETWORK SERVICES AND GROSS PROFIT

         Cost of network services increased by 62% to $24,513,000 for the third
  quarter of 1999 from $15,175,000 for the third quarter of 1998 and by 104% to
  $75,413,000 from $37,049,000 for the first nine months of 1999 versus the same
  period in 1998. This growth resulted primarily from increases in communication
  and usage charges resulting from increased transaction and query volumes,
  including transactions associated with the TAS acquisition. Gross profit
  represented approximately 47% of total revenues for the third quarter of 1999
  compared to 41% for the third quarter of 1998 and 41% for the first nine
  months of 1999 versus 42% for the same period in 1998. The decrease in gross
  profit as a percentage of total revenues for the nine months ended
  September 30, 1999 is largely attributed to the transitional communications
  services rates associated with the TAS acquisition and the Company's
  efforts to accommodate the TAS traffic. These efforts included increases in
  employees and network capacity, each of which increased the cost of network
  services. The decrease in gross margin percentage was also attributed to
  costs associated with the Company's expansion of its own on-network "800"
  access service and the impact of certain charges instituted in the
  recent phase of Access Reform. As of on or about September 15, 1999, 100% of
  the TAS transactions were transitioned off of the TAS network and onto the
  Company's network facilities. However, there were disproportionate expenses
  associated with the operation of the TAS Network until 100% of the TAS
  traffic was migrated onto the Company's network.

         In May 1997, pursuant to the Telecommunications Act of 1996 (the "1996
Act"), the FCC implemented rules and regulations referred to as Access Charge
Reform ("Access Reform"). The initial phase of Access Reform,

                                       11
<PAGE>

implemented in July 1997, resulted in a decrease in certain components of the
Company's variable cost per transaction, and as a result, lowered the Company's
network costs. The second and third phases of Access Reform were implemented in
January and July 1998, respectively. The second and third phases of Access
Reform resulted in an additional decrease in certain components of the Company's
variable cost per transaction; however, both phases increased certain of the
Company's fixed monthly recurring charges and instituted certain new fixed
charges. The changes in access charges instituted by the third phase of Access
Reform resulted in an increase in fixed charges which more than offset the
reduction in variable costs per transaction. Further changes to access charges
due to Access Reform are scheduled to be implemented in 2000. The
Company believes that future revisions may reduce its network costs because the
Company believes the increased charges are not in accordance with the spirit of
Access Reform that is intended to reduce overall access charges. However, there
can be no assurance that the future phases of Access Reform will result in
reductions to the Company's network costs and, in fact, they may increase. The
ultimate impact of Access Reform is dependent upon, among other things 1) the
ability to increase transaction volumes, which benefits the Company when lower
variable costs are instituted, 2) the nature and amount of fixed charges, 3) any
other future actions by the FCC, and 4) the ability of the Company to modify its
network design to react to pricing revisions. Accordingly, the impact of Access
Reform on the Company's future network access costs is unknown, and the Company
cannot predict the timing, outcome or effects of the FCC's regulations or of any
future tariff matters.

         During 1998 and 1999, the Company significantly expanded its backbone
and access network capacity in order to ensure adequate capacity and appropriate
network architecture for expected significant increases in network traffic
primarily related to the TAS acquisition, but to also accommodate increasing
volumes from its base business. These costs included the Company's continued
investment in the expansion of its own on-network "800" access service. The
Company considers the availability of its own on-network "800" access service
necessary to continue to increase transaction volumes on its network and to
increase its gross margins. The costs of establishing an "800" access service
are expected to negatively impact gross margins until the installation costs are
offset by an increase in transaction volumes. After a certain transaction volume
level, the Company believes that gross margins will increase due to a
significantly lower variable cost per transaction from the Company's own "800"
access service versus the variable cost per transaction charged by third party
service providers.

         Future gross profit margin percentages depend on a number of factors
including total transaction and query volume growth, the relative growth and
contribution to total transaction volume of each of the Company's customers, the
success of the Company's new service offerings including recent acquisitions,
the timing and extent of the Company's network expansion, including it own "800"
access service and the impact of Access Reform. In addition, any significant
loss or significant reduction in the growth of transaction volume could lead to
a decline in gross margin since significant portions of network costs are fixed
costs. As a result, maintaining historical gross margin levels depends in part
on growth in transaction volume generating economies of scale.

ENGINEERING AND DEVELOPMENT EXPENSES

         Engineering and development ("E&D") expense increased by 27% to
$1,735,000 for the third quarter of 1999 from $1,370,000 for the third quarter
of 1998 and by 32% to $4,662,000 from $3,538,000 for the first nine months of
1999 versus the same period in 1998. E&D expenses increased primarily from the
additional employees and related expenses required to support the Company's
expanded operations. E&D expenses represented approximately 4% of revenues for
the third quarter of 1999, 6% of revenues for the third quarter of 1998, 4% of
revenues for the first nine months of 1999 and 6% of revenues for the first nine
months of 1998. These decreases in E&D expenses as a percentage of revenues, are
due to an increase in revenues primarily associated with the TAS acquisition,
without a corresponding proportional increase in E&D expenses and the
capitalization of software costs in 1999. The Company capitalized approximately
$766,000 of software costs in the third quarter of 1999 and $2,116,000 in the
first nine months of 1999 under a new accounting standard which became effective
January 1, 1999.


                                       12

<PAGE>


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses increased by 78%
to $5,611,000 for the third quarter of 1999 from $3,152,000 for the third
quarter of 1998 and increased by 75% to $14,631,000 from $8,337,000 for the
first nine months of 1999 versus the same period in 1998. SG&A expenses
increased primarily from the additional employees and related expenses required
to support the Company's revenue growth and international expansion and from the
employees and related costs associated with the OmniLink acquisition. SG&A
expenses for the Company's International Systems Division increased by 87% to
$1,119,000 for the third quarter of 1999 from $597,000 for the third quarter of
1998 and increased by 112% to $2,666,000 for the first nine months of 1999 from
$1,260,000 for the first nine months of 1998. SG&A expenses represented 12% of
revenues for the third quarter of 1999, 12% of revenues for the third quarter of
1998, 12% of revenues for the first nine months of 1999 and 13% of revenues for
the first nine months of 1998. The decrease in SG&A expenses as a percentage
of revenues for the first nine months of 1999 is due to an increase in
revenues, primarily associated with the TAS acquisition, without a
corresponding proportional increase in SG&A expenses. The decrease is reduced
by the Company's international activities where SG&A expenses as a percentage
of revenues have been greater than Company's historical percentages. SG&A
expenses for the Company's International Systems Division ("ISD") represented
33% of ISD revenues for the third quarter of 1999, 101% of ISD revenues for
the third quarter of 1998, 39% of ISD revenues for the first nine months of
1999 and 75% of ISD revenues for the first nine months of 1998.

DEPRECIATION

         Depreciation expense increased by 51% to $2,732,000 for the third
quarter of 1999 from $1,805,000 for the third quarter of 1998 and by 63% to
$7,812,000 from $4,792,000 for the first nine months of 1999 versus the same
period in 1998. Depreciation expense increased primarily as a result of the
acquisition of capital equipment for network expansion to support the growth in
the Company's business. Depreciation expense represented 6% of revenues for the
third quarter of 1999, 7% of revenues for the third quarter of 1998, 6% of
revenues for the first nine months of 1999 and 7% of revenues for the first nine
months of 1998. These decreases are due to an increase in revenues, primarily
associated with the TAS acquisition, without a corresponding proportional
increase in depreciation expenses due to increased usage of the Company's
network.

         The Company purchased approximately $5.5 million of equipment for the
third quarter of 1999 and $16.1 million for the first nine months of 1999. These
amounts include approximately $815,000 of software costs capitalized in the
third quarter of 1999 and $2,282,000 of software costs capitalized in the first
nine months of 1999 under a new accounting standard. While certain of the
Company's network equipment will become fully depreciated in 1999, depreciation
expense is expected to increase in absolute dollars due to the deployment of the
equipment necessary to support the TAS acquisition, and to a lesser extent, due
to the Company's plans for international network expansion.

AMORTIZATION OF INTANGIBLES

         Amortization expense increased by 96% to $2,019,000 for the third
quarter of 1999 from $1,031,000 for the third quarter of 1998 and by 192% to
$6,205,000 from $2,123,000 for the first nine months of 1999 versus the same
period in 1998. The increase is attributable to the amortization of intangible
assets associated with the TAS, SunTech, OmniLink, TransLine, Switchtran and
TNSUK transactions.

RESERVE FOR AMNEX ASSETS

         On March 29, 1996, the Company completed an asset purchase from AMNEX,
Inc. ("AMNEX") of AMNEX's proprietary fraud-control system and related databases
used to provide fraud control and billing validation services. The transaction
also included a ten-year exclusive service agreement and other agreements. The
Company paid approximately $1.5 million in cash for these assets. In December
1997, the Company entered into a consulting agreement with AMNEX in exchange for
certain revisions made to the exclusive service agreement. The consulting
agreement required an initial payment of approximately $180,000 and monthly
payments of approximately $33,000 through June 30, 2002. In May 1998, the
Company delivered a notice of default to AMNEX for non-payment of fees


                                       13
<PAGE>

under the exclusive service agreement and consulting agreement. On July 29,
1998, the Company filed arbitration proceedings with the American Arbitration
Association against AMNEX. In January 1999, prior to the commencement of the
arbitration proceedings, the parties entered into a settlement agreement. The
settlement agreement required AMNEX to pay $530,000 of accounts receivable,
which was collected in 1999. AMNEX further agreed to pay the Company $1.7
million, with interest, in 24 equal monthly beginning in March 1999.
Approximately $255,000 of these amounts were paid in 1999. In May 1999, AMNEX
filed for bankruptcy protection. Management concluded that the remaining AMNEX
assets were impaired and the Company reserved the net assets related to AMNEX
remaining on its balance sheet. This reserve resulted in a pre-tax, non-cash
accounting charge of $919,000 recorded during the three months ended June 30,
1999.

INTEREST EXPENSE AND INTEREST INCOME

         Net interest resulted in an expense of $747,000 for the third quarter
of 1999 compared to interest income of $54,000 for the third quarter of 1998 and
an expense of $1,798,000 for the first nine months of 1999 versus interest
income of $910,000 for the same period in 1998. The Company incurred $1,126,000
of interest expense in the third quarter of 1999 and $3,051,000 for the first
nine months of 1999 primarily associated with borrowings made in connection with
the TAS acquisition.

INCOME TAXES

         The effective tax rate decreased from 40% for the third quarter of 1998
to 37% for the third quarter of 1999. This decrease is the result of a lower
effective tax rate for the Company's international operations than the effective
tax rate in the United States and the utilization of net operating loss
carryforwards by TNSUK. The Company's international operations resulted in net
income of $186,000 for the third quarter of 1999 compared to a loss of $201,000
for the third quarter of 1998. The Company's future effective tax rates will be
largely dependent upon the results of the Company's international activities.
The Company has not recorded tax assets for losses incurred at certain of its
foreign subsidiaries. If these subsidiaries demonstrate sustained profitability
the Company may experience a lower effective tax rate due to the utilization of
the loss carryforwards and a lower effective tax rate in Ireland than in the
United States.

EARNINGS PER SHARE

         Diluted earnings per share increased by 138% to $0.38 for the third
quarter of 1999 from $0.16 for the third quarter of 1998 and increased by 57% to
$0.69 for the first nine months of 1999 from $0.44 for the first nine months of
1998. Basic earnings per share increased by 141% to $0.41 for the third quarter
of 1999 from $0.17 for the third quarter of 1998 and increased by 59% to $0.73
for the first nine months of 1999 from $0.46 for the first nine months of 1998.

         The weighted-average number of shares outstanding used to calculate
basic and diluted earnings per share increased by 8% for the third quarter of
1999 from the third quarter of 1998 primarily because of the accelerated vesting
of unvested stock options held by Company employees in connection with the
signing of the merger agreement with PSINet on August 22, 1999 and because of
the issuance of 212,641 shares in connection with the January 13, 1999 TransLine
acquisition.


YEAR 2000

         The Company operates and utilizes various date-sensitive computer
applications and systems throughout its networks and businesses. The Company has
been cognizant of the Year 2000 issue for several years and has continually
attempted to maintain and/or upgrade its networks and computer systems to
recognize the Year 2000 and associated issues. The Company also recognizes that
there are risks with respect to embedded systems that are not necessarily part
of the Company's network or computer systems but contain microprocessor chips
that may not function properly with the change of the date to the Year 2000. The
management of the Company has formed an internal review team to resolve and
address Year 2000 issues. The Company defines "Year 2000 Compatible" to mean
that the product or service will accurately receive, process, and provide date
data from, into, and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and make leap year calculations, provided that all
other products (whether

                                       14
<PAGE>

hardware, software, or firmware) used in or in combination with the product or
service properly exchange data with it. Procedures have been developed and are
in place for assessing exposure and risk which include testing current and
future applications and systems, upgrading and replacing non-compliant equipment
and software and obtaining Year 2000 Compatibility statements from the Company's
significant third parties including material vendors and suppliers. The Company
has not sought, and is not seeking, Year 2000 Compatibility statements from its
customers. If the Company's current or future customers fail to achieve Year
2000 Compatibility or if they divert technology expenditures to address Year
2000 Compatibility problems, the Company's finances or business prospects may be
impaired. The Company has provided certain customers with statements of
readiness on the Year 2000.

         The Company's internal systems include both information technology
("IT") and non-IT systems. The Company has completed a baseline assessment of
its material internal IT systems (including both its own software products and
third party software and hardware technology) and its non-IT systems (such as
security systems, building equipment, and embedded micro-controllers) and is in
the process of implementing its plan (including remediation, upgrading, and
replacement). At this time the cost of replacement systems and modifications is
not expected to be, and has not been, material and has been incorporated into
system upgrades taking place in 1999. However, the Company may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in its internal IT and non-IT systems.

         To the extent that the Company is not able to test technology provided
by its vendors, the Company is seeking assurances from such vendors that their
systems are Year 2000 Compatible. Not all of the Company's significant vendors
and third parties have provided the Company with Year 2000 compatibility
statements. Despite the Company's testing and whatever assurances the Company
may receive from developers of products incorporated into the Company's products
and service offerings, the Company's products and service offerings may contain
undetected errors or defects associated with Year 2000 date functions. The goal
was to have the mission-critical networks, applications and systems within its
control Year 2000 Compatible by August 31, 1999. The Company has largely
completed the deployment of necessary software to its networks, applications and
systems, though some testing continues. The Company received a corrective
software patch from one vendor in October 1999 and is in the process of
deploying that patch. Based upon the deployment and testing performed to date,
the Company believes that the portions of its mission-critical networks,
applications and systems within its control are Year 2000 Compatible; however,
there can be no assurances that the Company has identified every factor or
component which may render its product or service not Year 2000 Compatible. In
addition to administering the implementation of necessary upgrades for Year 2000
compatibility, the Company has developed a contingency plan to address any
potential problems that may occur with its network as it enters the Year 2000.
Known or unknown errors or defects in the Company's products or service
offerings could result in delay or loss of revenue, diversion of development
resources, damage to the Company's reputation, or increased service and warranty
costs, any of which could impair the Company's finances or business prospects.

         The activities involved in the Company's Year 2000 projects necessarily
involve estimates and projections, as described above, of activities and
resources that will be required in the future. These estimates and projections
may be revised as work progresses on these projects. Disruptions with respect to
the computer systems of vendors or customers, which are outside the control of
the Company, could impair the ability of the Company to obtain services or
conduct business. If any of the Company's significant third parties are not Year
2000 Compatible and/or the Company fails to identify or replace non-compatible
equipment or software and non-compatibility causes a material disruption to the
business of the Company, the Company's revenues and financial position could be
materially adversely affected. There can be no assurance that the actions taken
by the Company with respect to its network, computer systems, products, or
embedded systems will eliminate the numerous and varied risks associated with
the Year 2000 date change. Further, there can be no assurance that the Company
will not be adversely affected by any Year 2000-related difficulties encountered
by vendors or customers or by any downturn in the economy in general and there
can be no assurance that the Year 2000 will not have a material adverse effect
on the Company's financial position or results of operations.


                                       15
<PAGE>


EURO CURRENCY

         The participating member countries of the European Union agreed to
adopt the European Currency Unit (the "Euro") as the common legal currency
beginning January 1, 1999. On that same date they established fixed conversion
rates between their existing sovereign currencies and the Euro. The Company has
defined "Euro Compliant" to mean that its product is capable of processing and
reporting any data denominated in the Euro in the same manner as processing and
reporting data denominated in the national currency units that comprise the
currencies of those member states that adopt the Euro without any loss of
functionality or interoperability or degradation in performance. The Company
does not believe that the Euro will have a material impact on the Company's
results of operations or financial condition and believes that its primary
network and computer systems are Euro Compliant.

LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 1999, the principal sources of liquidity were cash and
cash equivalents of $27,241,000, short-term investments of $125,000 and $13.0
million of availability under the Revolver. At September 30, 1999,
approximately $3.0 million of cash and cash equivalents were held by TNSUK
and TNSL majority owned subsidiaries. Non-marketable securities were
approximately $3.6 million at September 30, 1999. The Company invests in
non-marketable securities after consideration of the financial condition of
the borrower and the overall business relationship. Non-marketable securities
mature on the following dates, $92,000 in 1999, $473,000 in 2000, $150,000 in
2001, $550,000 in 2002 and $2.3 million in 2005.

         Net cash provided by operating activities was $13,341,000 for the first
nine months of 1999 and $7,068,000 for the same period in 1998. Depreciation and
amortization increased by $7,102,000 for the comparable nine-month periods.
This increase is attributable to costs associated with network expansion and
increased acquisition costs. Accounts receivable, accounts payable and
accrued expenses utilized $8,715,000 of cash for the first nine months of
1999 versus a use of $3,506,000 for the same period in 1998. The $8,731,000
reduction in accounts payable and accrued expenses for the nine months ended
September 30, 1999 is attributed to a decline in the amounts due to AT&T for
transition services from $16,302,000 at December 31, 1998 to $112,000 at
September 30, 1999

         Investing activities used $16,541,000 for the first nine months of
1999, as compared to a use of $80,352,000 for the first nine months of 1998. In
the first nine months of 1998, the Company paid $12,243,000 for the acquisition
of SunTech, $1,999,000 to acquire a 50% interest in Switchtran, approximately
$4.0 million to acquire a 60% interest in TNS UK and $64.3 million for the
TAS transaction. In the first nine months of 1999, the Company acquired
TransLine Communications, Inc. for approximately $4.1 million in TNS stock,
acquired the remaining 50% interest in Switchtran from its joint venture
partner for approximately $1.7 million and acquired the remaining 40%
interest in TNS UK from its joint venture partner for approximately $5.1
million. TransLine was acquired through the issuance of 212,641 shares of TNS
common stock and included $217,000 in acquisition costs paid in cash. The
acquisitions of Switchtran, TNS UK and TransLine provided $2,214,000 of cash
for the nine months ended September 30, 1999 since, at acquisition,
Switchtran had approximately $2.4 million of cash and the purchase price
liability assumed at acquisition was paid in July 1999 and TNS UK had
approximately $1.2 million of cash. The Company purchased $16,169,000 of
equipment in the first nine months of 1999 and $11,462,000 in the first nine
months of 1998. The increase was primarily due to equipment purchases
required to increase network capacity related to the TAS acquisition and
transaction increases from existing customers, the expansion of the Company's
"800" network, international expansion and the capitalization of $2,282,000
of software costs in the first nine months of 1999. The net proceeds from the
maturities of short and long-term investments were $2,975,000 for the first
nine months of 1999 and $4,288,000 for the first nine months of 1998.

         Financing activities provided $18,855,000 for the first nine months of
1999, and $65,320,000 for the first nine months of 1998. The Company received
$7,675,000 in proceeds for borrowings under the Revolver and repaid $5,626,000
($5.0 million under the Revolver) during the first nine months of 1999. Proceeds
from the exercise of stock options and the Company's employee stock purchase
plan were $16,806,000 for the first nine months of 1999 and $995,000 for the
first nine months of 1998.

                                       16

<PAGE>

         The Company believes that its existing cash, investment balances,
availability under the Revolver, and cash flows generated by operations will be
sufficient to meet the capital needs of its current business activities for the
foreseeable future.

NEW ACCOUNTING STANDARDS

         In March 1998, the AICPA issued Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use",
("SOP 98-1"). SOP 98-1 requires the Company to capitalize internal computer
software costs once certain capitalization criteria are met. SOP 98-1 was
effective January 1, 1999. The Company capitalized approximately $2,282,000 of
software costs in the nine-month period ended September 30, 1999 under SOP 98-1.
These costs will be amortized over the useful lives of the related projects,
presently five years. In June 1998, the FASB issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133 establishes accounting and reporting standards for derivative instruments
including instruments embedded in other contracts and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
June 1999, the FASB issued Statement No. 137 that deferred the adoption date of
SFAS 133. The Company will now be required to adopt Statement No. 133 on January
1, 2001. Statement No. 133 will not be applied retroactively to the financial
statements of prior periods. The Company has not yet determined the impact of
adopting Statement No. 133.

INFLATION

         Inflation is not a material factor affecting the Company's business and
has not had a significant effect on the Company's operations to date.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company has no financial instruments entered into for trading
purposes. The Company's primary market risk exposure is related to its
marketable and non-marketable securities, put and call arrangements with the
minority shareholders of its international subsidiaries and affiliates, foreign
currency exposure related to its international operations and its Revolver. The
Company places its marketable security investments in instruments that meet high
credit quality standards as specified in the Company's investment policy
guidelines. The Company invests in non-marketable securities after consideration
of the financial condition of the borrower and the overall business
relationship. Non-marketable securities were approximately $3.6 million at
September 30, 1999. Non-marketable securities mature on the following dates,
$92,000 in 1999, $473,000 in 2000, $150,000 in 2001, $550,000 in 2002 and $2.3
million in 2005. Management believes that providing its minority shareholders,
who generally also serve as employees of the subsidiary or affiliate, with an
equity interest better aligns the minority owners' interests with that of the
Company. The Company has entered into put and call arrangements with the
minority owners of its international subsidiaries and affiliates since the
Company generally prefers to ultimately own 100% of its international
operations. Information about the Company's put and call arrangements is
included in the Company's 1998 Form 10-K. The Company has not entered into
foreign currency exchange forward contracts or derivative arrangements. The
Company is exposed to foreign exchange rate fluctuations as the financial
results of foreign operations are translated into U.S. dollars. The effect of
foreign exchange rate fluctuations has not been material.

         The Revolver provides for unsecured LIBOR or base rate borrowings at
the Company's option. A margin is added to the applicable LIBOR or base rate
based upon the Company's ratio of total debt to annualized operating cash flow,
as defined in the agreement. The interest rate at September 30, 1999 was 6.31%
and $62 million was outstanding. The weighted-average interest rate for the
three-month period ended September 30, 1999 was 6.25%. LIBOR loan maturities
range from 30 to 180 days. The LIBOR loan outstanding at September 30, 1999
expired in October 1999 and was renewed for a one month LIBOR loan at an
interest rate of 6.41%. Fair value approximated book value at September 30, 1999
due to the short-term maturity of the amount outstanding. Interest on LIBOR
loans is paid at expiration or, for loans with an original maturity of greater
than 90 days, both at 90 days from inception and on


                                       17
<PAGE>

expiration. Interest on base rate loans is paid on March 31, June 30, September
30, and December 31. The Revolver matures in September 2001 and is subject to
annual renewals thereafter. Borrowings may be repaid at any time without penalty
subject to minimum repayment amounts.


                           PART II - OTHER INFORMATION


Item 1.           Legal Proceedings -  Not Applicable

Item 2.           Changes in Securities -

                           On August 22, 1999, the Company entered into a
                  definitive agreement to be acquired by PSINet Inc. ("PSINet").
                  In connection with the signing of the merger agreement,
                  unvested stock options held by employees of the Company
                  immediately vested.


Item 3.           Default Upon Senior Securities - Not Applicable

Item 4.           Submission of Matters to a Vote of Security Holders -

                  A Special Meeting of Stockholders has been called for November
                  23, 1999 at 9:00 a.m. at TNS Headquarters, 1939 Roland Clarke
                  Place, Reston, Virginia 20191.

                  The stockholders will vote on the following matters as set
                  forth in the proxy statement:

                           To consider and vote upon a proposal to adopt the
                           agreement and plan of merger among PSINet Inc.,
                           PSINet Shelf I Inc. (a wholly-owned subsidiary of
                           PSINet Inc.) and Transaction Network Services, Inc.,
                           and to approve the transactions contemplated in that
                           agreement.

Item 6.           Exhibits and Reports on Form 8-K

                  -   The Company filed a Current report on Form 8-K on July 29,
                      1999 reporting pursuant to Item 5 the Company's earnings
                      release for the second quarter ended June 30, 1999 as
                      reported on July 20, 1999.
                  -   The Company filed a Current report on Form 8-K on August
                      23, 1999 reporting pursuant to Item 5 that the Company had
                      entered into an agreement to be acquired by PSINet Inc. on
                      August 22, 1999.
                  -   The Company filed a Current report on Form 8-K on October
                      25, 1999 reporting pursuant to Item 5 the Company's
                      earnings release for the third quarter ended September 30,
                      1999 as reported on October 20, 1999.



                                       18
<PAGE>

                  (a.)     Exhibits.

                           10.1     Employment Agreement dated July 1, 1999
                                    between the Company and John J. McDonnell,
                                    Jr.
                           10.2     Form of Change in Control Agreement between
                                    the Company and certain of the Company's
                                    executive officers
                           27       Financial Data Schedule.


                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                    Transaction Network Services, Inc.
                                    (Registrant)



Date: November 12, 1999             By: /s/ JOHN J. MCDONNELL, JR.
                                        ---------------------------------------
                                            John J. McDonnell, Jr.
                                            President and Chief
                                            Executive Officer



Date: November 12, 1999             By: /s/ HENRY H. GRAHAM
                                        ---------------------------------------
                                            Henry H. Graham
                                            Chief Financial Officer



                                       19
<PAGE>


EXHIBIT 10.1


                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT dated as of July 1, 1999 ("Agreement"), is by
and between Transaction Network Services, Inc., a Delaware corporation ("TNS" or
the "Company") and John J. McDonnell, Jr. ("McDonnell").

         WHEREAS McDonnell has been employed as President and Chief Executive
Officer of TNS continuously since McDonnell founded TNS in August 20, 1990;

         WHEREAS the Board of Directors of TNS (the "Board" or "Board of
Directors") has determined that it is in the best interest of TNS and its
shareholders to continue to employ McDonnell as President and Chief Executive
Office and McDonnell desires to continue his employment in such capacity;

         NOW, THEREFORE TNS and McDonnell, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:

         1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set
forth below, TNS agrees to employ McDonnell and McDonnell accepts such
employment.

         2. TERM. The period of employment shall be from July 1, 1999 through
December 31, 2002, unless further extended or sooner terminated as hereinafter
set forth. Such employment period shall be automatically extended for successive
eighteen (18) month terms on January 1, 2003 and following the expiration of
each extension term unless one party hereto has provided the other with at least
six (6) months' prior written notice of their intention to allow this Agreement
to expire at the end of such initial or extended term, in which event the
employment period will terminate on the last day of such term.

         3. POSITION AND DUTIES.  McDonnell shall serve as President and Chief
Executive Officer of TNS with the duties described in TNS's By-Laws, as in
effect on the date hereof, and as otherwise customarily performed by the chief
executive officer of a company. McDonnell shall generally perform his duties and
services from TNS' offices in Reston, Virginia and shall not be required by TNS
to be personally based or transferred anywhere other than the metropolitan area
in which his office in TNS' headquarters is now located, without McDonnell's
prior written consent. McDonnell shall devote substantially all of his working
time and attention to the business and affairs of TNS, except (i) with respect
to incidental business activities, including the management of his personal
investments and outside directorships, which shall be fully disclosed to the
Board of



                                       21
<PAGE>

Directors prior to engaging in such activities and which, in the determination
of the Board of Directors, do not cause a conflict of interest or interfere with
McDonnell's performance of his duties under this Agreement, and (ii) as
otherwise approved by the Board of Directors.

         During the term of this Agreement, TNS shall nominate and take such
action as may be necessary or appropriate to seek stockholder election of
McDonnell to TNS's Board of Directors. McDonnell agrees to resign from the Board
of Directors in connection with, and effective upon, termination of his
employment with TNS, UNLESS specifically requested by the Board of Directors to
complete his term.

         4.       COMPENSATION AND RELATED MATTERS.

                  (a) BASE SALARY. McDonnell shall receive a base salary of
$450,000 per annum ("Base Salary") payable in accordance with the payroll
procedures for TNS's salaried employees in effect during the term of this
Agreement. The Base Salary shall be subject to annual review and possible
increase by the Board of Directors, but shall not be decreased during the
initial term or any extended term of this Agreement.

                  (b) ELIGIBILITY FOR BONUSES. McDonnell shall be eligible to
receive an annual bonus during the initial term and any extended term of this
Agreement. The Company, upon recommendation by the Compensation Committee of the
Board of Directors, shall establish a bonus arrangement for McDonnell. The
target amount for each such bonus shall be equal to a percentage of McDonnell's
Base Salary for the year for which the bonus is to be paid. Such bonuses shall
be based upon the Board-approved budgetary earnings per share achieved during
the year. The bonuses paid under this Section 4(b) may range from none to four
times Base Salary.

                  (c) STOCK OPTIONS. In each calendar year during the term of
this Agreement (and for any renewals thereof), McDonnell shall be granted
options to purchase shares of Common Stock, par value $0.01 per share of TNS
("Common Stock") pursuant to the TNS 1994 Stock Option Plan, as amended, or any
successor plan (collectively, the "Plan"). The target amount of options for
McDonnell during the term of this Agreement shall be 70,000 per year; provided,
however, that the actual number of options granted each year shall be at the
discretion of the Compensation Committee of the Board of Directors based upon
its evaluation of the Company's and McDonnell's performance during the twelve
(12) months prior to such grant. The exercise price of each option grant shall
be the fair market value of the Common Stock as of the date of grant, and the
vesting schedule will be monthly for four years from the date of grant (i.e.,
1/48th per month). The date of issuance for each grant shall be determined at
the discretion of the TNS Compensation Committee. All other terms of each option
agreement (including but not limited to change of control and acceleration)
shall be set in accordance with the provisions of the Plan as in effect as of
the date of this Agreement. To the extent it is able, TNS agrees to reserve a
sufficient number of shares under the Plan and to take such other action as may
be necessary or appropriate to amend the Plan in order to give effect to this
Section 4(c).

                  (d) BUSINESS EXPENSES. McDonnell shall be entitled to
reimbursement of reasonable and ordinary business-related expenses consistent
with TNS's policies in effect from time to time.


                                       22
<PAGE>

                  (e) FRINGE BENEFITS. In addition to any benefits specifically
set forth herein, McDonnell shall be entitled to all employee benefits made
available now or in the future to other officers of TNS.

                         (i) TNS shall allow McDonnell at his request to use
Company aircraft for personal travel for up to ten percent (10%) of the flight
hours allocated to TNS per year, provided that TNS business travel shall have
priority of use of McDonnell's personal travel requirements. McDonnell shall
reimburse TNS for his use of Company aircraft hereunder at the Standard Industry
Fare Level ("SIFL"), set by the Department of Transportation from time to time
as required by IRS Rules Section 1.61-21(g).

                         (ii) TNS shall reimburse McDonnell on an annual basis
for the premiums paid by McDonnell with respect to a $5,000,000 term life
insurance policy (which policy shall be owned by McDonnell), plus an amount
sufficient to pay all federal, state and local taxes applicable to such payment.

                         (iii) TNS shall reimburse McDonnell on an annual basis
for premiums paid by McDonnell with respect to a disability policy selected by
McDonnell providing for benefits of up to sixty percent (60%) of McDonnell's
Base Salary (calculated in accordance with the terms of such policy), plus an
amount sufficient to pay all federal, state and local taxes applicable to such
payment.

                  (f) VACATIONS. McDonnell shall be entitled to paid vacation in
each calendar year consistent with the TNS vacation policy applicable to
executive officers of the rank of Vice President and above (currently 5 weeks
per calendar year, with full tenure credit since August 1990). McDonnell shall
be entitled to all paid holidays observed by TNS.

                  (g) INDEMNIFICATION. McDonnell shall be fully indemnified by
TNS and its successors in his capacity as an officer and director (if
applicable) of TNS to the full extent permitted by Delaware law, and shall be
defended and held harmless, absolutely, irrevocably and forever by TNS and its
successor to the full extent permitted by Delaware law, from and against all
claims, demands, liabilities, costs, expenses, damages and causes of action of
any nature whatsoever, arising out of or incidental to the execution of
McDonnell's duties and responsibilities hereunder regarding any matters or
actions McDonnell undertook or performed within the course and scope of his
duties and responsibilities as an officer, employee and director of TNS,
including without limitation advances by TNS to McDonnell for the payment of
legal fees and expenses, provided that McDonnell shall advise TNS promptly of
any such claim or litigation against him and cooperate fully with TNS in
connection therewith, and provided further that TNS shall have the right to
assume and control the defense of such action and to take such action as is
reasonably necessary to discharge its obligations hereunder. In addition, TNS
shall include McDonnell as a named insured in any Director sand Officers
Liability Insurance policy or policies maintained by TNS for its directors and
officers. The provisions of this Section 4(g) shall survive the expiration,
suspension or termination, for any reason, of this Agreement.

         5. TERMINATION OF EMPLOYMENT/EFFECT OF TERMINATION.

                  (a) DEATH. McDonnell's employment hereunder shall terminate
upon his death, in which event TNS shall have no further obligation to McDonnell
or his estate with respect to compensation, other than (i)



                                       23
<PAGE>

the disposition of life insurance and related benefits, accrued and unpaid Base
Salary, accrued vacation, and earned incentive compensation for periods prior to
the date of termination, and (ii) all stock options awarded to McDonnell under
the Plan at any time during his employment with the Company shall be fully
vested as of the date of termination.

                  (b) BY MCDONNELL. McDonnell may terminate this agreement upon
ninety (90) days' prior written notice to TNS. In the event McDonnell's
employment is terminated pursuant to this section 5(b), TNS's only obligation to
McDonnell will be the payment of any accrued and unpaid Base Salary, accrued
vacation, and earned incentive compensation for the period from the date written
notice is given by McDonnell, plus 90 days (or such later period if McDonnell
agrees to work beyond 90 days).

                  (c) BY TNS FOR DISABILITY. If McDonnell incurs a disability
and such disability continues for a period of twelve (12) consecutive months,
then TNS may terminate McDonnell's employment upon written notice to McDonnell,
in which event TNS shall continue to pay McDonnell his full salary and benefits
with respect to compensation under Section 4 of this Agreement until McDonnell
becomes eligible for disability income payments under TNS's disability income
plan. While receiving disability income payments under such plan, TNS shall
continue to pay McDonnell the difference between such disability income payments
and his Base Salary until the expiration date of this Agreement, including any
and all extensions. In addition, McDonnell shall be entitled to continue
participation in all benefit plans provided for under Section 4 for the
remainder of the then-current term of this Agreement. The term "disability"
means a physical or mental illness that will prevent McDonnell from doing
substantial gainful work for at least twelve (12) months. If McDonnell becomes
entitled to Social Security benefits payable on account of disability, he will
be conclusively deemed to be disabled for purposes of this Agreement.

                  (d) BY TNS FOR CAUSE. The Board of Directors of TNS may
terminate this Agreement for Cause. "Cause" shall be defined as: (i) the
continued failure by McDonnell to perform his material responsibilities and
duties toward the Company (other than any such failure resulting from
McDonnell's incapacity due to physical or mental illness or any such actual or
anticipated failure after McDonnell gives notice of termination of employment
for Good Reason (as hereinafter defined)), including without limitation
McDonnell's willful failure to perform at the direction of the resolutions of
the Board of Directors; (ii) the engaging by McDonnell in willful or reckless
conduct that is demonstrably injurious to the Company monetarily or otherwise,
including without limitation the violation of Sections 14 and 16 of this
Agreement; (iii) the conviction of McDonnell of a felony; (iv) material
misrepresentation to the Company by McDonnell of his/her professional
qualifications; or (v) the commission or omission of any act by McDonnell that
is materially inimical to the best interests of the Company and that constitutes
on the part of McDonnell common law fraud or malfeasance, misfeasance, or
nonfeasance of duty; PROVIDED, HOWEVER, that except as provided in subsection
(iv) above "Cause" shall not include McDonnell's lack of professional
qualifications. For purposes of this Agreement, an act, or failure to act, on
the Executive's part shall be considered "willful" or "reckless" only if done,
or omitted, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. McDonnell may only
be terminated for Cause pursuant to a resolution duly adopted by the majority
vote of its entire membership present physically at a



                                       24
<PAGE>

meeting of the Board of Directors called for such purpose (provided that a
majority of the members approving such resolution were directors of TNS elected
at its last annual meeting of stockholders), finding that, in the good faith
opinion of the Board of Directors, McDonnell was guilty of conduct set forth in
clause (i), (ii), (iii), (iv) or (v) above, and specifying the particulars
thereof in detail; PROVIDED, HOWEVER, that McDonnell may not be terminated for
Cause unless: (1) McDonnell receives at least ten (10) business days prior
written notice of TNS's intention to terminate this Agreement for Cause and the
specific reasons therefor; and (2) McDonnell has an opportunity to meet in
person with TNS's entire Board of Directors and be given, if the acts are
correctable, a reasonable opportunity and reasonable period of time to correct
the act or acts (or non-action) giving rise to such written notice; and (3) the
Board of Directors, by resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board of Directors finds that McDonnell
fails to make such correction after reasonable opportunity to do so, this
Agreement may be terminated for Cause.

         In the event McDonnell is terminated for Cause, TNS's only obligation
to McDonnell will be the payment of any accrued and unpaid Base Salary, accrued
vacation, and earned incentive compensation for periods prior to the date of
termination.

                  (e) BY TNS FOR OTHER THAN CAUSE. The Board of Directors may
terminate this Agreement for reasons other than Cause in accordance with
sub-paragraph (d) above after giving at least ninety (90) days' prior written
notice of such termination to McDonnell. In addition to all other rights of
McDonnell hereunder following such termination:

                         (i) TNS will pay to McDonnell within ten (10) days of
notice of termination (or, in the case of incentive bonus compensation, within
ten (10) days of determination of amounts payable under the applicable bonus
plan generally) an amount equal to (A) the undiscounted remainder of his Base
Salary then in effect either for the remainder of the then-current term of this
Agreement or two (2) years, whichever is greater, and (B) any deferred salary
and/or bonus compensation payable under this Agreement or pursuant to any other
plan or arrangement of TNS or any affiliate in which McDonnell is a participant,
whether or not then vested or payable:

                         (ii) TNS shall pay to McDonnell an amount equal to two
(2) times the highest incentive bonus paid to McDonnell for any of the three
calendar years immediately preceding the date of termination, prorated through
his months of departure;

                         (iii) all granted but unexercisable stock options under
all of McDonnell's Option Agreements (and any additional options granted upon
extension of the term hereof, if applicable) shall become immediately
exercisable and remain exercisable according to the terms of the Plan;

                         (iv) McDonnell may participate in TNS's life,
disability, health, dental, accident and other benefit programs following such
termination for either the remainder of the then-current term of this Agreement
or two (2) years, whichever is greater, at no higher cost to McDonnell than
McDonnell's costs immediately prior to the date of termination. In the event the
Company's plans do not permit continued participation by McDonnell after his
termination, then McDonnell will instead be entitled to a lump sum payment


                                       25
<PAGE>

from TNS of the expected cost to McDonnell to purchase and continue all such
benefit programs, as an individual or family policyholder, grossed up for all
local, state and Federal taxes at the maximum tax rates.

                         (f) BY MCDONNELL FOR GOOD REASON. McDonnell may
terminate his employment hereunder (for purposes of this Agreement "Good
Reason") after giving at least 30 days' notice in the event that: (i) TNS
relocates its general and administrative offices or McDonnell's place of
employment to an area other than the Washington, D.C. Standard Metropolitan
Statistical Area (the "Washington SMSA"), (ii) he is assigned any duties
substantially inconsistent with his responsibilities as described by Section 3
hereof or a substantial adverse alteration is made to the nature or status of
such responsibilities (which for purposes of this Agreement shall be deemed to
include the removal or non-reelection of McDonnell to TNS's Board of Directors
unless consented to in writing by McDonnell), (iii) TNS reduces his Base Salary
as in effect on the date hereof or as the same may be increased from time to
time; (iv) TNS fails, without McDonnell's consent, to pay McDonnell any portion
of his current compensation, or to pay him any portion of an installment of
deferred compensation under any deferred compensation program of TNS, within
seven (7) days of the date such compensation is due; (v) TNS fails to continue
in effect any compensation plan in which McDonnell participates which is
material to McDonnell's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by TNS to continue McDonnell's
participation therein (or in such substitute or alternative Plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of McDonnell's participation relative to other participants; (vi) TNS
fails to continue to provide McDonnell with benefits substantially similar to
those enjoyed by McDonnell under any of TNS's pension, life insurance, medical,
health and accident, or disability plans in which McDonnell was participating;
(vii) TNS takes any action which would directly or indirectly materially reduce
any of such benefits or deprive McDonnell of any material fringe benefit enjoyed
by McDonnell, or TNS fails to provide McDonnell with the number of paid vacation
days to which McDonnell is entitled hereunder; or (viii) TNS terminates, or
proposes to terminate McDonnell's employment hereunder contrary to the
requirements of Section 5(e) hereof (for purposes of this Agreement, no such
termination or purported termination shall be effective). In the event that
McDonnell elects to terminate this Agreement for Good Reason and his employment
with TNS or any successor in interest in accordance with the provisions of this
section, in addition to all other rights of McDonnell hereunder following such
termination:


                         (i) TNS will pay to McDonnell within ten (10) days
of notice of termination (or, in the case of incentive bonus compensation,
within ten (10) days of determination of amounts payable under the applicable
bonus plan generally, an amount equal to (A) the undiscounted remainder of
his Base Salary then in effect either for the remainder of the then-current
term of this Agreement or two (2) years, whichever is greater, and (B) any
deferred salary and/or bonus compensation payable under this Agreement or
pursuant to any other plan or arrangement of TNS or any affiliate in which
McDonnell is a participant, whether or not then vested or payable;

                                       26
<PAGE>

                         (ii) TNS shall pay to McDonnell an amount equal to two
(2) times the highest incentive bonus paid to McDonnell for any of three
calendar years immediately preceding the date of termination prorated through
his month of departure;

                         (iii) all granted but unvested stock options under all
of McDonnell's Option Agreements (including any additional options granted upon
extension of the term hereof) shall become immediately exercisable and remain
exercisable according to the terms of the Plan;

                         (iv) McDonnell may participate in TNS's life,
disability, health, dental, accident and other benefit programs following such
termination for either the remainder of the then-current term of this Agreement
or two (2) years, whichever is greater, at no higher cost to McDonnell than
McDonnell's costs immediately prior to the date of termination. In the event the
Company's plans do not permit continued participation by McDonnell after his
termination, then McDonnell will instead be entitled to a lump sum payment from
TNS of the expected cost to McDonnell to purchase and continue all such benefit
programs, as an individual or family policyholder, grossed up for all local,
state and Federal taxes at the maximum tax rates.

         Any other payments due or actions required under this Section 5(f)
shall be made within 10 days of termination of the Agreement (or, in the case of
incentive bonus compensation, within ten (10) days of determination of amounts
payable under the applicable bonus plan generally).

                  (g) TERMINATION FOLLOWING A CHANGE IN CONTROL. In the event of
termination of McDonnell's employment hereunder within two (2) years following a
Change in Control (as defined below), for any reason (including by McDonnell for
Good Reason but excluding any termination by TNS for Cause) in addition to the
rights provided in the Option Agreement and all other rights provided hereunder:

                         (i) TNS will pay to McDonnell within ten (10) days of
notice of termination (or, in the case of incentive bonus compensation, within
ten (10) days of determination of amounts payable under the applicable bonus
plan generally) an amount equal to three (3) times his Base Salary in effect as
of the date of termination, as well as any deferred salary bonus compensation
payable under this Agreement or pursuant to any other plan or arrangement of TNS
or any affiliate in which McDonnell is a participant, whether or not then vested
or payable;

                         (ii) TNS shall pay to McDonnell an amount equal to
three (3) times the highest incentive bonus paid to McDonnell for any of the
three calendar years immediately preceding the Change in Control, prorated
through his month of departure;

                         (iii) all granted but unvested stock options under all
of McDonnell's Option Agreements (including any additional options granted upon
extension of the term hereof) shall become immediately exercisable and remain
exercisable according to the terms of the Plan;

                         (iv) McDonnell may participate in TNS's life,
disability, health, dental, accident and other benefit programs following such
termination for three (3) years at no higher cost to McDonnell than McDonnell's
costs immediately prior to the date of termination. In the event the Company's
plans do not permit continued participation by McDonnell after his termination,
then McDonnell will instead be entitled to a lump sum



                                       27
<PAGE>

payment from TNS of the expected cost to McDonnell to purchase and continue all
such benefit programs, as an individual or family policyholder, grossed up for
all local, state and Federal taxes at the maximum tax rates. For purposes of
this Agreement, "Change in Control" shall mean a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is then subject to such
reporting requirements; provided that, without limitation, a Change in Control
shall be deemed to have occurred if (i) any person (as such term is used in
section 13(d) and 14(d) of the Exchange Act) is or becomes beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, the following persons (the
"Continuing Directors") cease for any reason to constitute a majority of the
Board: individuals who at the beginning of such period constitute the Board and
new directors each of whose election to the Board or nomination for election to
the Board by the Company's security holders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved; or (iii) the security holders of the Company approve a
merger or consolidation of the Company with any other entity, other than a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately before the merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of such surviving entity) a majority of the voting securities of the
Company or of such surviving entity outstanding immediately after such merger or
consolidation; or (iv) the security holders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.

                  (h) NOTICE OF TERMINATION. Termination of this Agreement by
TNS or termination of this Agreement by McDonnell shall be communicated by
written notice to the other party hereto, specifically indicating the
termination provision relied upon.

                  (i) CUT BACK IN BENEFITS. In the event that McDonnell becomes
entitled to the payments and benefits described in this Section 5 (together with
any other benefits to which McDonnell is entitled hereunder following a
termination entitling McDonnell to the payments and benefits of this Section 5
the "Severance Benefits"), if any of the Severance Benefits will be subject to
any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), TNS shall pay to McDonnell an
additional amount (the "Gross-Up Payment") such that the net amount retained by
McDonnell, after deduction of any Excise Tax on the Severance Benefits and any
federal, state and local income and employment tax and Excise Tax upon the
payment provided for by this Section 5, shall be equal to the Severance
Benefits. For purposes of determining whether any of the Severance Benefits will
be subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by McDonnell in connection with
a Change in Control or McDonnell's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
TNS, any person whose actions result in a change in control or any person

                                       28
<PAGE>

affiliated with TNS or such person) shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel selected by
TNS's independent auditors and reasonably acceptable to McDonnell such other
payments or benefits (in whole or in part) do not constitute parachute payments,
including without limitation by reason of Section 280G(b)(4)(A) of the Code, or
such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered, within the meaning of Section
280G(b)(4)(B) of the Code in excess of the Base Amount as defined in Section
280G(b)(3) of the Code allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, (ii) the amount of the Severance
Benefits that shall be treated as subject to the Excise Tax shall be equal to
the lesser of (a) the total amount of the Severance Benefits or (b) the amount
of excess parachute payments within the meaning of Section 280G(b)(1) of the
Code (after applying clause (i) above), and (iii) the value of all non-cash
benefits or any deferred payment or benefit shall be determined by TNS's
independent auditors in accordance with the principles of Section 280G(d)(3) and
(4) of the Code. For purposes of determining the amount of the Gross-Up Payment,
McDonnell shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of his residence on the date of
termination, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder in the computation of the Gross-Up Payment, McDonnell shall
repay to TNS (without interest), at the time that the amount of such reduction
in Excise Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus that portion of the Gross-Up Payment
attributable the Excise tax and federal, state and local income and employment
tax imposed on the portion of the Gross-Up Payment being repaid by McDonnell to
the extent that such repayment results in a reduction in the Excise Tax and/or
in a federal, state or local income or employment tax deduction). In the event
that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the computation of the Gross-Up Payment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up payment), TNS shall make an additional Gross-Up Payment
in respect of such excess (plus any interest, penalties or additions payable by
McDonnell with respect to such excess) at the time that the amount of such
excess is finally determined. McDonnell and TNS shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Severance Benefits.

                  (j) EXPENSES. TNS also shall pay to McDonnell all legal and
accounting fees and expenses incurred by McDonnell as a result of a termination
which entitles him to the Severance Benefits (including all such fees and
expenses, if any, incurred in disputing any such termination, in seeking in good
faith to obtain or enforce any benefit or right provided by this Agreement or in
any dispute with any taxing authority with respect to any Excise Tax). Such
payments shall be made within five (5) business days after delivery of
McDonnell's written



                                       29
<PAGE>

requests for payment accompanied with evidence of such fees and expenses
incurred as TNS may reasonably require.

                  (k) COMPANY PROPERTY. Upon the termination of McDonnell's
employment under this agreement, for any reason, McDonnell shall be entitled to
retain, as his own property, mobile telephones, notebook and other computers and
their related peripherals, other electronic equipment, furnishings, all
equipment manufactured by TNS and used by McDonnell, and other property issued
to McDonnell in the course of his employment.

                  (l) FULL SETTLEMENT; NO DUTY TO MITIGATE. The Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations under this Agreement shall not be affected by any
set-off, counterclaim, recoupment, defense, or other claim, right, or action the
Company may have against McDonnell or others. McDonnell shall not be under any
duty to mitigate the costs associated with the fulfillment of the obligations of
the Company hereunder by seeking gainful employment or otherwise.

         6. BENEFICIARY. The Beneficiary of any payment to be made in the event
of McDonnell's death shall be his wife, or such other person or persons as
McDonnell shall designate in writing to TNS. If no beneficiary shall survive
McDonnell, any such payments shall be made to his estate.

         7. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.

         8. GOVERNING LAW. This Agreement is governed by and shall be construed
in accordance with the laws of the Commonwealth of Virginia. McDonnell agrees to
submit to personal jurisdiction in the Commonwealth of Virginia.

         9. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.

         10. SUCCESSORS. This Agreement shall be binding upon TNS, its
successors and assigns, including any corporation or other business entity which
may acquire all or substantially all of TNS's assets or business, or within
which TNS may be consolidated or merged, or any surviving corporation in a
merger involving TNS.

         11. WAIVER OR MODIFICATION OF AGREEMENT. No waiver or modification of
this Agreement shall be valid unless in writing and duly executed by both
parties.

                                       30
<PAGE>

         12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.

         13. CONTROLLING AGREEMENT. In the event of any inconsistency or
conflict between the provisions of this Agreement and any term or provision of
the Option Agreement, the provisions of this Agreement shall govern and
supersede such conflicting or inconsistent provision. To the extent it is able,
TNS agrees to cause the Plan to be amended as may be required to eliminate any
such conflict or inconsistency.

         14 NONCOMPETITION COVENANTS. McDonnell agrees that during the term of
this Agreement, and thereafter for a period of two years following termination
of his employment hereunder (other than in the event of any termination by TNS
other than for Cause or by McDonnell for Good Reason, or termination for any
reason within two years following a Change in Control, in which events the
restrictions of this Section 14 shall not apply), he will not, without the prior
written consent of the Board of Directors as evidenced by a resolution adopted
by the Board, directly or indirectly, whether as employee, partner, owner,
agent, director, officer, consultant or equity holder (except as the holder of
not more than 5% of the outstanding equity interest at the time of acquisition
of a publicly traded entity, or any successor thereto), engage in any business
competitive with any business in which TNS or any of its affiliates were engaged
on the date of termination (a "Competitive Business"). The foregoing shall not
prohibit McDonnell from becoming affiliated with any person engaged in a
Competitive Business provided that McDonnell's affiliation does not include any
involvement in any capacity with such Competitive Business.

         McDonnell acknowledges that his violation of this Section 14 would
cause TNS and its affiliates to suffer irreparable damage, and that the
character, period and scope of the restrictions set forth herein are reasonably
required for the protection of TNS. Therefore, in addition to any other remedies
available to TNS under this Agreement or otherwise, TNS shall be entitled to
seek injunctive relief with respect to any violation of this Section 14 in any
court of competent jurisdiction.

         15. NONDISPARAGEMENT. Each party hereto agrees that for any reason, it
will not make any disparaging statements, remarks or comments with respect to
the remaining party, whether written or oral.

         16. CONFIDENTIAL INFORMATION. McDonnell shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company or any of its Subsidiaries, and their
respective businesses, obtained by McDonnell during his employment by the
Company or any of its subsidiaries and that has not become public knowledge
(other than by acts of McDonnell or his representatives in violation of this
Agreement). After the date of termination of McDonnell's employment with the
Company, McDonnell shall not, without the prior written consent of the Company,
communicate or divulge any



                                       31
<PAGE>

such information, knowledge, or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 16 constitute a basis for deferring or withholding any amounts
otherwise payable to McDonnell under this Agreement.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.



TRANSACTION NETWORK SERVICES, INC.:               EMPLOYEE:

By:      /s/ HENRY H. GRAHAM                      /s/ John J. McDonnell, Jr.
         -----------------------------            ------------------------------
         Henry H. Graham                          John J. McDonnell, Jr.
         Senior Vice President &                  Address: 8401 Brookewood Ct.
         Chief Financial Officer                  McLean Virginia 22102




                                       32
<PAGE>

EXHIBIT 10.2

In July 1999 the Company entered into the following form change in control
agreement with its executive officers, Messrs. Brian J. Bates, Henry H. Graham,
Jr., Roderick W. Lyman, John J. McDonnell III, Matthew M. Mudd, James Mullen,
Luther Peters III, Ian Reingold, John Schanz, William Scheibel, Craig B.
Stutzman and Scott Ziegler.

                           CHANGE IN CONTROL AGREEMENT

         AGREEMENT by and between Transaction Network Services, Inc., a Delaware
corporation (the "Company"), with offices at 1939 Roland Clarke Place, Reston,
VA 20191, and ______________________________ (the "Executive"), an individual
residing at _______________________________________________________, dated as of
the ____ day of ___________, 1999.

         WHEREAS, the Company recognizes that the current business environment
makes it difficult to attract and retain highly qualified executives unless a
certain degree of security can be offered to such individuals against
organizational and personnel changes that frequently follow changes in control
of an organization; and

         WHEREAS, even rumors of acquisitions or mergers may cause executives to
consider major career changes in an effort to assure financial security for
themselves and their families; and

         WHEREAS, the Company desires to assure fair treatment of its executives
in the event of a Change in Control (as defined below) and to allow them to make
critical career decisions without undue time pressure and financial uncertainty,
thereby increasing their willingness to remain with the Company notwithstanding
the outcome of a possible Change in Control transaction; and

         WHEREAS, the Company recognizes that its executives will be involved in
evaluating or negotiating any offers, proposals, or other transactions that
could result in Changes in Control of the Company and believes that it is in the
best interest of the Company and its stockholders for such executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively the interests of the Company's
security holders in making these evaluations and carrying on such negotiations;
and

         WHEREAS, the Board of Directors (the "Board") of the Company believes
it is essential to provide the Executive with compensation arrangements upon a
Change in Control that provide the Executive with individual financial security
and that are competitive with those of other corporations, and, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.

         NOW THEREFORE, the parties, for good and valuable consideration and
intending to be legally bound, agree as follows:

         1. OPERATION AND TERM OF AGREEMENT. This Agreement shall be effective
immediately upon its execution. This Agreement may be terminated by the Company
upon 24 months' advance written notice to the Executive; PROVIDED, HOWEVER, that
after a Change in Control of the Company during the term of this Agreement, this
Agreement shall remain in effect until all of the obligations of the parties
under the Agreement are satisfied and the Protection Period (as defined below)
has expired. Prior to a Change in Control this Agreement shall immediately
terminate upon termination of the Executive's employment or upon the Executive's
ceasing to be an elected or appointed officer of the Company, except in the case
of such termination under circumstances set forth in Section 2(e) below. This
Agreement shall remain effective during any period during which the Executive is
granted a leave of absence but otherwise remains an employee and officer of the
Company.

         2. CERTAIN DEFINITIONS. The following words and phrases shall have the
meanings given for the purposes of this Agreement:

                                       33
<PAGE>

                  (a) "Cause" shall mean (i) the continued failure by the
Executive to perform his material responsibilities and duties toward the Company
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness); (ii) the engaging by the Executive in willful or
reckless conduct that is demonstrably injurious to the Company monetarily or
otherwise; (iii) the conviction of the Executive of a felony; (iv) material
misrepresentation to the Company by Executive of his/her professional
qualifications; or (v) the commission or omission of any act by the Executive
that is materially inimical to the best interests of the Company and that
constitutes on the part of the Executive common law fraud or malfeasance,
misfeasance, or nonfeasance of duty; PROVIDED, HOWEVER, that except as provided
in subsection (iv) above "Cause" shall not include the Executive's lack of
professional qualifications. For purposes of this Agreement, an act, or failure
to act, on the Executive's part shall be considered "willful" or "reckless" only
if done, or omitted, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company. The Executive's
employment shall not be deemed to have been terminated for "cause" unless the
Company shall have given or delivered to the Executive (A) reasonable notice
setting forth the reasons for the Company's intention to terminate the
Executive's employment for "cause"; (B) a reasonable opportunity, at any time
during the 30-day period after the Executive's receipt of such notice, for the
Executive, together with his counsel, to be heard before the Board; and (C) a
Notice of Termination (as defined in Section 9 below) stating that, in the good
faith opinion of not less than a majority of the entire membership of the Board,
the Executive was guilty of the conduct set forth in clauses (i), (ii), (iii),
or (iv) of the first sentence of this Section 2(a).

                  (b) "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities and Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirements; provided that, without limitation, a
Change in Control shall be deemed to have occurred if (i) any person (as such
term is used in section 13(d) and 14(d) of the Exchange Act) is or becomes
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding
securities; or (ii) during any period of two consecutive years, the following
persons (the "Continuing Directors") cease for any reason to constitute a
majority of the Board: individuals who at the beginning of such period
constitute the Board and new directors each of whose election to the Board or
nomination for election to the Board by the Company's security holders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved; or (iii) the securityholders
of the Company approve a merger or consolidation of the Company with any other
entity, other than a merger or consolidation that would result in the voting
securities of the Company outstanding immediately before the merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of such surviving entity) a majority of
the voting securities of the Company or of such surviving entity outstanding
immediately after such merger or consolidation; or (iv) the security holders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.

                  (c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

                  (d) "Disability," for purposes of this Agreement, shall mean
total disability as defined in any long-term disability plan sponsored by the
Company in which the Executive participates, or, if there is no such plan or it
does not define such term, then Disability shall mean the physical or mental
incapacity of the Executive that prevents the Executive from substantially
performing the duties of the office or position to which the Executive was
elected or appointed by the Board for a period of at least 180 days, which
incapacity is expected to be permanent and continuous through the Executive's
65th birthday.

                  (e) The "Change in Control Date" shall be any date during the
term of this Agreement on which a Change in Control occurs. Notwithstanding any
contrary provision in this Agreement, if the Executive's employment or status as
an elected officer with the Company is terminated by the Company within six
months before the date on which a Change in Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated or intended to effect a Change in Control
or

                                       34
<PAGE>

(ii) otherwise arose in connection with or anticipation of a Change in Control,
then for the purposes of this Agreement the "Change in Control Date" shall mean
the date immediately before the date of such termination.

                  (f)      "Good Reason" means:

                         (i) the assignment to the Executive within the
Protection Period of any duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting requirements,
authority, duties, or responsibilities) or any other action that results in a
diminution in such position, authority, duties, or responsibilities excluding
for this purpose an isolated, insubstantial, and inadvertent action that is not
taken in bad faith and is remedied by the Company promptly after receipt of
notice given by the Executive;

                         (ii) a reduction by the Company in the Executive's base
salary in effect immediately before the beginning of the Protection Period or as
increased from time to time after the beginning of the Protection Period;

                         (iii) a failure by the Company to maintain plans
providing benefits at least as beneficial as those provided by any benefit or
compensation plan (including, without limitation, any incentive compensation
plan, bonus plan, or program, retirement, pension or savings plan, life
insurance plan, health and dental plan, or disability plan) in which the
Executive is participating immediately before the beginning of the Protection
Period or any action taken by the Company that would adversely affect the
Executive's participation in, or reduce the Executive's opportunity to benefit
under, any of such plans or deprive the Executive of any material fringe benefit
enjoyed by him immediately before the beginning of the Protection Period;
PROVIDED, HOWEVER, that a reduction in benefits under the Company's
tax-qualified retirement, pension, or savings plans or its life insurance plan,
health and dental plan, disability plans, or other insurance plans, which
reduction applies generally to participants in the plans and has a de minimis
effect on the Executive shall not constitute "Good Reason" for termination by
the Executive;

                         (iv) the Company's requiring the Executive, without the
Executive's written consent, to be based at any office or location in excess of
50 miles from his office location immediately before the beginning of the
Protection Period, except for travel reasonably required in the performance of
the Executive's responsibilities;

                         (v) any purported termination by the Company of the
Executive's employment for Cause otherwise than as referred to in Section 9 of
this Agreement; or

                         (vi) any failure by the Company to obtain the
assumption of the obligations contained in this Agreement by any successor as
contemplated in Section 8(c) of this Agreement.

                  (g) "Parent" means any entity that directly or indirectly
through one or more other entities owns or controls more than 50 percent of the
voting securities of the Company.

                  (h) "Protection Period" means the period beginning on the
Change in Control Date and ending on the last day of the 36th calendar month
following the Change in Control Date.

                  (i) "Subsidiary" means a company 50 percent or more of the
voting securities of which are owned, directly or indirectly, by the Company.

         3. BENEFITS UPON TERMINATION UNDER CERTAIN CIRCUMSTANCES WITHIN THE
PROTECTION PERIOD. If the Executive's employment is terminated by the Company
during the Protection Period other than for Cause or Disability and other than
as a result of the Executive's death, or if the Executive terminates his
employment during the Protection Period for Good Reason, the Company shall,
subject to Section 6, pay to the Executive in a lump sum in cash within ten days
after the date of termination the aggregate of the following amounts and shall
provide the following benefits:

                                       35
<PAGE>

                  (a) The Executive's base salary and vacation pay (for vacation
not taken) accrued but unpaid through the date of termination of employment; and

                  (b) A lump sum severance payment in an amount equal to the
product of 2.99 times the Executive's "Average Annual Compensation." For the
purposes of this Agreement, "Average Annual Compensation" shall be an amount
equal to the average annual remuneration from the Company which was includable
in the gross income of the Executive during the period consisting of the most
recent five calendar years ending before the Change in Control Date; PROVIDED,
HOWEVER, that if the Executive has been compensated by the Company for less than
five calendar years or the Executive has taken a leave of absence at any time
during such five calendar years, the average annual remuneration from the
Company will be determined by calculating the annual average of the remuneration
from the Company which was includable in the gross income of the Executive
during such shorter period; and

                  (c) Within 30 days of the date of termination of employment,
upon surrender by the Executive of the outstanding options to purchase shares of
common stock of the Company ("Shares") granted to the Executive by the Company
(the "Outstanding Options") and any stock appreciation rights granted to the
Executive by the Company ("SARs"), an amount with respect to each Outstanding
Option and SAR (whether vested or not) equal to the difference between the
exercise price of such Outstanding Options and SARs and the higher of (x) the
fair market value of the Shares on the date of such termination (but not less
than the closing price for the Shares on the New York Stock Exchange, or such
other national stock exchange on which such shares may be listed, on the last
trading day such shares traded prior to the date of termination); and (y) the
highest price paid for Shares or, in the cases of securities convertible into
Shares or carrying a right to acquire Shares, the highest effective price (based
on the prices paid for such securities) at which such securities are convertible
into Shares or at which Shares may be acquired, by any person or group whose
acquisition of voting securities has resulted in a Change in Control of the
Company; and

                  (d) The Company shall provide the Executive with life
insurance coverage and health plan coverage substantially comparable to the
coverage the Executive was receiving from the Company immediately before
termination of employment; the provision of such coverage will continue until
the expiration of the thirty-six (36) calendar month period following the date
of the termination of the Executive's employment, or, if earlier, until the date
on which the Executive becomes eligible for comparable coverage in connection
with subsequent employment, PROVIDED, HOWEVER, that if such coverage is not
available under the plans covering the Company's employees, the Company may, at
its option, substitute for the provision of such coverage monthly payments to
the Executive for the same period in an amount equal to the reasonable monthly
cost of securing comparable coverage for an individual of the Executive's age on
a standard risk basis; and

                  (e) All of the Executive's benefits accrued under any
supplemental retirement plans, excess retirement plans, and deferred
compensation plans maintained by the Company or any of its Subsidiaries shall
become immediately vested in full.

          4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive, or other plans, practices, policies, or programs provided by
the Company or any of its Subsidiaries and for which the Executive may qualify,
nor shall anything in this Agreement limit or otherwise affect such rights as
the Executive may have under any stock option or other agreements with the
Company or any of its Subsidiaries. Any amount of vested benefit or any amount
to which the Executive is otherwise entitled under any plan, practice, policy,
or program of the Company or any of its Subsidiaries shall be payable in
accordance with the plan, practice, policy, or program; PROVIDED, HOWEVER, that
if the Executive is entitled to benefits under Section 3, the Executive shall
not be entitled to severance pay, or benefits similar to severance pay, under
any plan, practice, policy, or program generally applicable to employees of the
Company or any of its Subsidiaries. The provision of severance pay or other
benefits pursuant to Section 3 shall not be deemed to be a continuance of the
Executive's employment for any purposes.

          5. FULL SETTLEMENT; NO OBLIGATION TO SEEK OTHER EMPLOYMENT; LEGAL
EXPENSES. The Company's obligation to make the payments provided for in this
Agreement and otherwise to



                                       36
<PAGE>

perform its obligations under this Agreement shall not be affected by any
set-off, counterclaim, recoupment, defense, or other claim, right, or action the
Company may have against the Executive or others. The Executive shall not be
obligated to seek other employment or take any action by way of mitigation of
the amounts payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay, upon written demand by the Executive, all
legal fees and expenses the Executive may reasonably incur as a result of any
dispute or contest (regardless of outcome) by or with the Company or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement. In any such action brought by the Executive for damages or to
enforce any provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including, without
limitation, specific performance of the Company's obligations under this
Agreement, in the Executive's sole discretion.

          6. CUT BACK IN BENEFITS.

                  (a) Notwithstanding any other provision of this Agreement, the
cash lump sum payment and other benefits or severance pay otherwise to be
provided pursuant to Section 3 of this Agreement (the "Severance Benefit") shall
be reduced as described below if the Company would, by reason of section 280G of
the Code, not be entitled to deduct for federal income tax purposes any part of
the Severance Benefit or any part of any other payment or benefit to which
Executive is entitled under any plan, practice, policy, or program.

                  (b) For the purposes of this Agreement, the Company's
independent auditors shall determine the value of any deferred payments or
benefits in accordance with the principles of section 280G of the Code, and tax
counsel selected by the Company's independent auditors and acceptable to the
Company shall determine the deductibility of payments and benefits to which the
Executive is entitled. The Severance Benefit shall be reduced only to the extent
required, in the opinion of such tax counsel, to prevent such nondeductibility
of any part of the remaining Severance Benefit and other payments and benefits
to which the Executive is entitled. Any determination made by the Company's
independent auditors or by tax counsel pursuant to this Section 6 shall be
conclusive and binding on the Executive. In making any such determination, the
Company's independent auditors shall not include any value associated with the
acceleration of incentive stock options (within the meaning of Section 422 of
the Code) unless following the date of this Agreement legislation or regulations
shall be adopted specifically requiring such result.

                  (c) If any reduction is to be made pursuant to this Section 6,
the Executive shall have the right, in his or her sole discretion, to determine
which elements of the Severance Benefit shall be reduced to conform to the
provisions of this Section 6. The reductions may include the elimination of
payments, the reduction of the amount of any payments and/or the extension of
the date upon which the payments would otherwise be made.

         7. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company or any of its Subsidiaries, and their
respective businesses, obtained by the Executive during the Executive's
employment by the Company or any of its Subsidiaries and that has not become
public knowledge (other than by acts of the Executive or his representatives in
violation of this Agreement). After the date of termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company, communicate or divulge any such information, knowledge,
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 7 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.

          8. SUCCESSORS.

                  (a) This Agreement is personal to the Executive and shall not
be assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives or successors in interest. The Executive
may designate a successor or successors in interest to receive any and all
amounts due the Executive under this Agreement after the Executive's death. A
designation of a successor in interest shall be made in writing, signed by the
Executive, and delivered to the Company pursuant to Section 12(b). This Section
8(a) shall not supersede any designation of




                                       37
<PAGE>

beneficiary or successor in interest made by the Executive or provided for under
any other plan, practice, policy, or program of the Company.

                  (b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

                  (c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company and any Parent of the
Company or any successor and without regard to the form of transaction utilized
to acquire the business or assets of the Company, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or parentage had
taken place. As used in this Agreement, "Company" shall mean the Company as
defined above and any successor to its business or assets as aforesaid (and any
Parent of the Company or any successor) that is required by this clause to
assume and agree to perform this Agreement or that otherwise assumes and agrees
to perform this Agreement.

          9. NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party given in accordance
with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) if the date of termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive to
set forth in the Notice of Termination any fact or circumstance that contributes
to a showing of Good Reason shall not waive any right of the Executive under
this Agreement or preclude the Executive from asserting such fact or
circumstance in enforcing his rights.

          10. REQUIREMENTS AND BENEFITS IF EXECUTIVE IS EMPLOYEE OF SUBSIDIARY
OF COMPANY. If the Executive is an employee of any Subsidiary of the Company, he
shall be entitled to all of the rights and benefits of this Agreement as though
he were an employee of the Company and the term "Company"shall be construed to
include the Subsidiary by which the Executive is employed. The Company
guarantees the performance of its Subsidiary under this Agreement.

          11. DISPUTE RESOLUTION. The Company and the Executive shall attempt to
resolve between them any dispute that arises under this Agreement. If they
cannot agree within ten days after either party submits a demand for arbitration
to the other party, then the issue shall be submitted to arbitration with each
party having the right to appoint one arbitrator and those two arbitrators
mutually selecting a third arbitrator. The rules of the American Arbitration
Association for the arbitration of commercial disputes shall apply and the
decision of two of the three arbitrators shall be final. The arbitrators must
reach a decision within 60 days after the selection of the third arbitrator. The
arbitration shall take place in Fairfax County, Virginia. The arbitrators shall
apply Virginia law.

          12. MISCELLANEOUS.

                  (a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the Agreement and shall have no force or effect. This Agreement maybe amended or
modified only by a written agreement executed by the parties or their respective
successors and legal representatives.

                  (b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid, to the
addresses for each party as first written above or to such other address as
either party shall have furnished to the other in writing in accordance with
this Section 12. Notices and communications to the Company shall be addressed to
the attention of the Company's Corporate Secretary. Notice and communications
shall be effective when actually received by the addressee.

                                       38
<PAGE>

                  (c) Whenever reference is made in this Agreement to any
specific plan or program of the Company, to the extent that the Executive is not
a participant in the plan or program or has no benefit accrued under it, whether
vested or contingent, as of the Change in Control Date, then such reference
shall be null and void and the Executive shall acquire no additional benefit as
a result of such reference.

                  (d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

                  (e) The Company may withhold from any amounts payable under
this Agreement such federal, state, or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

                  (f) The Company's or the Executive's failure to insist upon
strict compliance with any provision of this Agreement shall not be construed to
be a waiver of such provision or any other provision.

                  (g) Except in the case of termination of employment or elected
officer status under the circumstances set forth in Section 2(e) above, upon a
termination of the Executive's employment or upon the Executive's ceasing to be
an elected officer of the Company, in each case, prior to the Change in Control
Date, there shall be no further rights under this Agreement.

         IN WITNESS WHEREOF, the Executive has set his hand to this Agreement
and, pursuant to the authorization from the Board, the Company has caused this
Agreement to be executed as of the day and year first above written.


                                  TRANSACTION NETWORK SERVICES INC.


                                      By:
                                          ------------------------------------
                                          John J. McDonnell, Jr.
                                          President and Chief Executive Officer


                                      EXECUTIVE


                                      ----------------------------------------
                                      Title:
                                            ----------------------------------


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