Pre-Filing Matters – What is the “due diligence” process? – (23)

take necessary steps to comply prior to filing the registration statement or prior to effectiveness. However, the company will not have to comply with the requirements of Section 404 of Sarbanes-Oxley regarding internal control over financial reporting until the second fiscal year following its IPO (and potentially after the fifth fiscal year for an EGC).
What is the “due diligence” process?
Underwriters have a defense to Securities Act liability if they exercise “due diligence,” which is the practice of reviewing information about an issuer in an effort to mitigate liability and reputational risk. After the organizational meeting and during the quiet period, the underwriters and their counsel will likely spend a substantial amount of time performing business, financial and legal due diligence in connection with the
IPO. The process is usually started with a “due diligence request” prepared by the underwriters and their counsel. The company’s key management personnel will generally make a series of presentations covering the company’s business and industry, market opportunities, and financial matters. The underwriters will use these presentations as an opportunity to ask questions and establish a basis for their “due diligence” defense. The presentations will also aid the company and the underwriters in determining how the prospectus will describe the company, its business, strategies and objectives and risk factors, and provide information for drafting the underwriting agreement.
The company’s directors and officers will be provided with a directors’ and officers’, or “D&O,” questionnaire to complete. The purpose of the questionnaire is to identify any facts about those individuals, and the relationships that they have with the company, its

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