Sec. 22.223  Definitions concerning competitive bidding process.

    (a) Scope. The definitions in this section apply to Secs. 22.201 
through 22.227, unless otherwise specified in those sections.
    (b) Small business; consortium of small businesses. (1) A small 
business is an entity that either:
    (i) Together with its affiliates and controlling principals has 
average gross revenues that are not more than $3 million for the 
preceding three years; or
    (ii) Together with its affiliates and controlling principals has 
average gross revenues that are not more than $15 million for the 
preceding three years.
    (2) For purposes of determining whether an entity meets either the 
$3 million or $15 million average annual gross revenues size standard 
set forth in paragraph (b)(1) of this section, the gross revenues of the 
entity, its affiliates, and controlling principals shall be considered 
on a cumulative basis and aggregated.
    (3) A consortium of small businesses is a conglomerate organization 
formed as a joint venture between or among mutually independent business 
firms, each of which individually satisfies the definition of a small 
business in paragraph (b)(1) of this section. Each individual member 
must establish its eligibility as a small business, as defined in this 
section. Where an applicant (or licensee) is a consortium of small 
businesses, the gross revenues of each small business shall not be 
aggregated.

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    (c) Gross Revenues. Gross revenues shall mean all income received by 
an entity, whether earned or passive, before any deductions are made for 
costs of doing business (e.g., cost of goods sold). Gross revenues are 
evidenced by audited financial statements for the relevant number of 
calendar or fiscal years preceding the filing of the applicant's short-
form application. If an entity was not in existence for all or part of 
the relevant period, gross revenues shall be evidenced by the audited 
financial statements of the entity's predecessor-in-interest or, if 
there is no identifiable predecessor-in-interest, unaudited financial 
statements certified by the applicant as accurate. When an applicant 
does not otherwise use audited financial statements, its gross revenues 
may be certified by its chief financial officer or its equivalent.
    (d) Affiliate.--(1) Basis for Affiliation. An individual or entity 
is an affiliate of an applicant if such individual or entity:
    (i) Directly or indirectly controls or has the power to control the 
applicant, or
    (ii) Is directly or indirectly controlled by the applicant, or
    (iii) Is directly or indirectly controlled by a third party or 
parties who also control or have the power to control the applicant, or
    (iv) Has an ``identity of interest'' with the applicant.
    (2) Nature of control in determining affiliation. (i) Every business 
concern is considered to have one or more parties who directly or 
indirectly control or have the power to control it. Control may be 
affirmative or negative and it is immaterial whether it is exercised so 
long as the power to control exists.

    Example for paragraph (d)(2)(i). An applicant owning 50 percent of 
the voting stock of another concern would have negative power to control 
such concern since such party can block any action of the other 
stockholders. Also, the bylaws of a corporation may permit a stockholder 
with less than 50 percent of the voting stock to block any actions taken 
by the other stockholders in the other entity. Affiliation exists when 
the applicant has the power to control a concern while at the same time 
another person, or persons, are in control of the concern at the will of 
the party or parties with the power of control.

    (ii) Control can arise through stock ownership; occupancy of 
director, officer or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the concern, 
has a critical influence in or substantive control over the operations 
or management of the concern.
    (iii) Control can arise through management positions if the voting 
stock is so widely distributed that no effective control can be 
established.

    Example for paragraph (d)(2)(iii). In a corporation where the 
officers and directors own various size blocks of stock totaling 40 
percent of the corporation's voting stock, but no officer or director 
has a block sufficient to give him/her control or the power to control 
and the remaining 60 percent is widely distributed with no individual 
stockholder having a stock interest greater than 10 percent, management 
has the power to control. If persons with such management control of the 
other entity are controlling principals of the applicant, the other 
entity will be deemed an affiliate of the applicant.

    (3) Identity of interest between and among persons. Affiliation can 
arise between or among two or more persons with an identity of interest, 
such as members of the same family or persons with common investments. 
In determining if the applicant controls or is controlled by a concern, 
persons with an identity of interest will be treated as though they were 
one person.
    (i) Spousal affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States.
    (ii) Kinship affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family

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member'' means father, mother, husband, wife, son, daughter, brother, 
sister, father- or mother-in-law, son- or daughter-in-law, brother- or 
sister-in-law, step-father, or -mother, step-brother, or -sister, step-
son, or -daughter, half-brother or -sister. This presumption may be 
rebutted by showing that:
    (A) The family members are estranged,
    (B) The family ties are remote, or
    (C) The family members are not closely involved with each other in 
business matters.

    Example for paragraph (d)(3)(ii). A owns a controlling interest in 
Corporation X. A's sister-in-law, B, has a controlling interest in a 
paging geographic area authorization application. Because A and B have a 
presumptive kinship affiliation, A's interest in Corporation X is 
attributable to B, and thus to the applicant, unless B rebuts the 
presumption with the necessary showing.

    (4) Affiliation through stock ownership. (i) An applicant is 
presumed to control or have the power to control a concern if he/she 
owns or controls or has the power to control 50 percent or more of its 
voting stock.
    (ii) An applicant is presumed to control or have the power to 
control a concern even though he/she owns, controls, or has the power to 
control less than 50 percent of the concern's voting stock, if the block 
of stock he/she owns, controls, or has the power to control is large as 
compared with any other outstanding block of stock.
    (iii) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any other 
stock holding, the presumption arises that each one of these persons 
individually controls or has the power to control the concern; however, 
such presumption may be rebutted by a showing that such control or power 
to control, in fact, does not exist.
    (5) Affiliation arising under stock options, convertible debentures, 
and agreements to merge. Stock options, convertible debentures, and 
agreements to merge (including agreements in principle) are generally 
considered to have a present effect on the power to control the concern. 
Therefore, in making a size determination, such options, debentures, and 
agreements will generally be treated as though the rights held 
thereunder had been exercised. However, neither an affiliate nor an 
applicant can use such options and debentures to appear to terminate its 
control over another concern before it actually does so.

    Example 1 for paragraph (d)(5). If company B holds an option to 
purchase a controlling interest in company A, who holds a controlling 
interest in a paging geographic area authorization application, the 
situation is treated as though company B had exercised its rights and 
had become owner of a controlling interest in company A. The gross 
revenues of company B must be taken into account in determining the size 
of the applicant.
    Example 2 for paragraph (d)(5). If a large company, BigCo, holds 70% 
(70 of 100 outstanding shares) of the voting stock of company A, who 
holds a controlling interest in a paging geographic area authorization 
application, and gives a third party, SmallCo, an option to purchase 50 
of the 70 shares owned by BigCo, BigCo will be deemed to be an affiliate 
of company A, and thus the applicant, until SmallCo actually exercises 
its options to purchase such shares. In order to prevent BigCo from 
circumventing the intent of the rule which requires such options to be 
considered on a fully diluted basis, the option is not considered to 
have present effect in this case.
    Example 3 for paragraph (d)(5). If company A has entered into an 
agreement to merge with company B in the future, the situation is 
treated as though the merger has taken place.

    (6) Affiliation under voting trusts. (i) Stock interests held in 
trust shall be deemed controlled by any person who holds or shares the 
power to vote such stock, to any person who has the sole power to sell 
such stock, and to any person who has the right to revoke the

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trust at will or to replace the trustee at will.
    (ii) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests held 
in trust will be deemed controlled by the grantor or beneficiary, as 
appropriate.
    (iii) If the primary purpose of a voting trust, or similar 
agreement, is to separate voting power from beneficial ownership of 
voting stock for the purpose of shifting control of or the power to 
control a concern in order that such concern or another concern may meet 
the Commission's size standards, such voting trust shall not be 
considered valid for this purpose regardless of whether it is or is not 
recognized within the appropriate jurisdiction.
    (7) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the majority 
or otherwise as the controlling element of the board of directors and/or 
the management of another entity.
    (8) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the other 
concern.
    (9) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern for 
contracts and business to such a degree that one concern has control, or 
potential control, of the other concern.
    (10) Affiliation under joint venture arrangements. (i) A joint 
venture for size determination purposes is an association of concerns 
and/or individuals, with interests in any degree or proportion, formed 
by contract, express or implied, to engage in and carry out a single, 
specific business venture for joint profit for which purpose they 
combine their efforts, property, money, skill and knowledge, but not on 
a continuing or permanent basis for conducting business generally. The 
determination whether an entity is a joint venture is based upon the 
facts of the business operation, regardless of how the business 
operation may be designated by the parties involved. An agreement to 
share profits/losses proportionate to each party's contribution to the 
business operation is a significant factor in determining whether the 
business operation is a joint venture.
    (ii) The parties to a joint venture are considered to be affiliated 
with each other.