Sec. 101.1112  Definitions.

    (a) Scope. The definitions in this section apply to Secs. 101.1101 
through 101.1112, unless otherwise specified in those sections.
    (b) Small business; consortium. (1) A small business is an entity 
that, together with its affiliates and controlling principals, has 
average gross revenues for the three preceding years of not more than 
$40 million.
    (2) For purposes of determining whether an entity meets the 
definition of small business

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or qualifies as a business with average gross revenues for the three 
preceding years of more than $40 million but not more than $75 million, 
the gross revenues of the applicant, its affiliates and controlling 
principals shall be considered on a cumulative basis and aggregated.
    (3) Consortium. A consortium of small businesses, or a consortium of 
businesses with average gross revenues for the three preceding years of 
more than $40 million but not more than $75 million, 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 or business with average gross revenues 
for the three preceding years of more than $40 million but not more than 
$75 million. Each individual member must establish its eligibility as a 
small business or business with average gross revenues for the three 
preceding years of more than $40 million but not more than $75 million. 
Where an applicant (or licensee) is a consortium of small businesses or 
a consortium of businesses with average gross revenues for the three 
preceding years of more than $40 million but not more than $75 million, 
the gross revenues of each business shall not be aggregated.
    (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), as evidenced by 
audited financial statements for the relevant number of most recently 
completed calendar years, or, if audited financial statements were not 
prepared on a calendar-year basis, for the most recently completed 
fiscal years preceding the filing of the applicant's short-form 
application (FCC Form 175). 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 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 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

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members. In this context ``immediate family 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 an 
LMDS license 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 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 owns, controls, or has the power to 
control less than 50 percent of the concern's voting stock, if the block 
of stock 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 an LMDS 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 
percent (70 of 100 outstanding shares) of the voting stock of company A, 
who holds a controlling interest in an LMDS license 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 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 or the 
management (or both) of another entity.
    (8) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space, employees, or other 
facilities (or any combination of the foregoing) 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

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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 or 
individuals (or both), 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.
    (11) Exclusion from affiliation coverage. For purposes of paragraphs 
(b) and (d) of this section, Indian tribes or Alaska Regional or Village 
Corporations organized pursuant to the Alaska Native Claims Settlement 
Act (43 U.S.C. 1601 et seq.), or entities owned and controlled by such 
tribes or corporations, are not considered affiliates of an applicant 
(or licensee) that is owned and controlled by such tribes, corporations 
or entities, and that otherwise complies with the requirements of 
paragraphs (b), except that gross revenues derived from gaming 
activities conducted by affiliated entities pursuant to the Indian 
Gaming Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in 
determining such applicant's (or licensee's) compliance with the 
financial requirements of paragraph (b) of this section, unless such 
applicant establishes that it will not receive a substantial unfair 
competitive advantage because significant legal constraints restrict the 
applicant's ability to access such gross revenues.
[ 62 FR 23172 , Apr. 29, 1997, as amended at  62 FR 28375 , May 23, 1997]

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