Two shareholders of core solutions provider Open Solutions are claiming the company may have diminished the value of their investments on the eve of its possible sale.

Michael Nicastro and Andrew Bennett, shareholders and former executives of Glastonbury, Conn.-based Open Solutions, say the software maker may have misled investors about its condition and declined financially since the Carlyle Group and Providence Equity Partners took the company private for $1.3 billion roughly six years ago, according to a lawsuit filed Thursday in Connecticut state court.

The men, who hold a combined $1.3 million in stock and equity options in Open Solutions, accuse the company of withholding information that would enable them to appraise the value of their holdings, and charge Open Solutions CEO Louis Hernandez and other officers with approving borrowing since 2007 that may not be for the benefit of all shareholders.

"Plaintiffs have been unable to obtain financial performance information from Open to determine whether EBITDA targets have been achieved," Nicastro and Bennett allege in their complaint, which also charges Open Solutions' officers with approving actions "in violation of their duty of care and duty of loyalty to Open shareholders." [EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.]

The lawsuit comes amid reports that Open Solutions' management and private equity partners are selling the company, which said in April its earnings rose 20% and its cash flow jumped 47% in 2011. Initial bids valued the business at $1 billion, the Wall Street Journal reported in April, citing unnamed sources.

"We have not seen a lawsuit and company policy is not to comment on any litigation," Open Solutions spokeswoman Hadas Streit told American Banker.

Credit Suisse Group, which is overseeing the bidding for Open Solutions, also declined to comment.

The case stems from grants of stock and options Nicastro, a former head of marketing at Open Solutions, received from the company over roughly 14 years beginning in 1994. Bennett, who served as chief operating officer and held a series of top technology posts at Open Solutions over a seven-year period starting in 2001, received some of his compensation in the form of stock.

Though Bennett puts the value of his remaining share at $1.1 million and Nicastro says his stake stands at about $275,000, both men say the company's actions have frustrated their ability to know their interests precisely.

"The visibility into the company's performance is zero," Bennett told American Banker on Friday. "My fear is there have been material things going on that haven't been disclosed to us."

Bennett also says he's concerned the private equity firms that own Open Solutions can extract funds or take other steps that could lower the value of his shares. "My concern is if anything happens the value isn't diluted by any complex accounting or any of those things," he added.

For his part, Nicastro says Open Solutions' disclosures to date tell him little about its financial condition. "They claim extraordinary growth/success yet the company is being sold because it didn't turn out as private equity expected," he wrote in an email to American Banker.

Both men say reports the company could fetch roughly 23% less in a sale than the value of the company when it went private in 2007 spurred their suit. "We have a right to protect our investment," Nicastro said. "If a transaction is imminent, it would be shame on us for not taking action at the right time."