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I am using my application to connect to a server through a VPN connection.
I have added logic to the 'ConnectionLost' event of my connection.

I connect to the database, then disconnect the VPN connection.
My exception event handler is catching the exception, but the ConnectionLost event is not taking place.

Any ideas?

Have you set the LocalFailover option of the TMSConnection component to True?
You can take a look at the "Working in an unstable network" topic of SDAC help for information about SDAC settings useful in unstable networks.