updated 1/5/2004 3:22:11 PM ET 2004-01-05T20:22:11

A former executive assistant at Tyco International Ltd. testified Monday that L. Dennis Kozlowski, the company's former chairman and chief executive, purchased a $5 million diamond ring for his wife in 2001 with a loan through Tyco.

Tammy Cross, a former Tyco employee who oversaw Kozlowski's finances for a time, said Kozlowski used a loan under the Bermuda conglomerate's so-called Key Employee Loan Program, or KELP, to buy a $5 million ring that he later gave to Karen Mayo, his wife.

Kozlowski and Mark Swartz, Tyco's former chief financial officer, are on trial in Manhattan on charges they improperly used Tyco funds to enrich themselves and others. Each faces up 30 years in prison.

KELP was initially designed to allow certain employees to borrow money from the company to cover income taxes on vesting of restricted shares. The program was later expanded to allow employees to borrow money for anything up to a portion of the value of their restricted shares.

Several directors have testified that they never approved the change in KELP.

In her time with Tyco, Cross also worked in the payroll department and in the company's flight department, where she served as a secretary dispatcher and sometimes flight attendant. Cross, who also served as Swartz's executive assistant, joined the company in 1986 as a receptionist and switchboard operator.

When she moved to the flight department in 1997, Kozlowski told her "I would be seeing different things and to be discreet," Cross said.

At the suggestion of Kozlowski and Swartz, Tyco began paying for the private schooling of Cross's daughter, now 21 years old. The company first paid for her attendance at a Maine private school, which had a gym named after Kozlowski and to which Tyco donated generously. Tyco also paid for Cross' daughter's senior year at a Florida private school when Cross relocated there.

Later, Kozlowski told her in a telephone conversation that it made sense for Tyco to pay for college, Cross said.

"I was overwhelmed," she said.

Kozlowski hand wrote a letter to Cross's daughter, which she later typed and had Kozlowski and Swartz sign. In the letter, the executives congratulate her on being named a "Tyco scholar" and say the company will cover tuition, room and board, books and incidentals at any college.

"This provides you with a unique opportunity to focus upon and explore your interests without financial restraints," the letter says.

Cross also testified that the company later forgave a $239,000 mortgage she made through the company when she relocated to Boca Raton, Fla.

Relocation loans were forgiven for about 50 employees as a supposed bonus for the success of the initial public offering of Tycom, its optical fiber unit.

Prosecutors have charged that Kozlowski received about $33 million in loan forgiveness and payments for taxes on that forgiveness. Swartz received $16.6 million as a result of that bonus, which several directors have said they never approved.

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