LEXINGTON, MISS., JAN. 5 -- American Tobacco Co. internal memos show that excessive residues of a toxic pesticide were found on its tobacco and cigarettes more than a decade ago, according to testimony in a damage suit brought against the company by the family of a deceased cigarette smoker. American Tobacco did not discontinue use of the pesticide until last October, when the chemical was identified as causing cancer in animals.

A jury in the case today heard videotaped testimony by Preston H. Leake, director of research and development for American Tobacco (ATCO), that ATCO "never treated tobacco intended for sale to the public" with DDVP, the pesticide in question.

It also heard testimony from a sworn deposition by Walter W. Dickerson, a retired maintenance man at ATCO's Reidsville, N.C., plant, that DDVP was routinely sprayed on tobacco and even on cigarettes every night.

Dickerson, who left the plant in 1979 after 32 years there, testified that night cleaning crews regularly swept tobacco dust off the floors and machinery and saved it so it could be used as so-called "reconstituted" tobacco in cigarettes. He rejected repeated suggestions by defense counsel Jim Upshaw that the sweepings were deposited in dumpsters.

The issue of how DDVP was used at the Reidsville plant is an issue in the wrongful death suit brought the family of the late Nathan H. Horton, who smoked about two packs of ATCO's unfiltered Pall Malls a day for more than 30 years, and who developed emphysema and the inoperable lung cancer that killed him a year ago.

Plaintiff's attorney Don Barrett played the Dickerson and Leake videotaped depositions immediately following opening statements in the jury trial here.

Barrett told the jury that in addition to DDVP, Pall Mall smokers inhaled at least three dangerous chemicals -- DDT, TDE and Endrin -- until the government banned them; such "deadly cancer causing agents" as nitrosamines and benzolpyrines; and radioactive Polonium 210, which enters tobacco plants from high-phosphate fertilizers.

Defense counsel Upshaw called the Reidsville plant "cleaner than most food processing plants," claimed it was "not true" that DDVP caused or contributed to Horton's lung cancer, and called Dickerson "a disgruntled, bitter {former} employe."

Dickerson gave his deposition from a hospital bed in Reidsville. He has lost most of his eyesight, blaming exposure to DDVP sprayings and "gassings."

In a deposition last May, Leake, an organic chemist, said that ATCO doesn't test domestic or imported tobacco leaf for pesticide residues, although "I think we could."

Asked whether DDVP got into or penetrated tobacco, he said, "probably not," claiming that the bug killer was used only in storage areas. He also said, "I don't believe that there's anything in the smoke that the smoker receives that would cause an adverse effect."

Four months later, Dickerson testified that DDVP was routinely sprayed "directly on the tobacco" and on cigarette-making machines, that the chemical "penetrates the tobacco" and that he had never seen any effort to remove the DDVP from the tobacco.

Barrett then confronted Leake, at a second deposition in December, with a January 1976 internal company memo relating to problems with DDVP contamination of tobacco.

According to Barrett, the memo pointed out that the government in March 1975 had set a tolerance for DDVP residues of 0.5 parts per million, but that an "off the scale" minimum of 2 ppm -- at least four times the approved tolerance -- had been found in the tobacco and paper of a filtered Pall Mall.The memo also said that the residues can remain "for up to one year when in contact with certain porous materials," including "filter material, cigarette paper and, to an extent, tobacco."

The memo said that a residue problem appears to exist "wherever unprotected finished cigarettes or filter materials are in an area that is treated with DDVP."

In another memo quoted by Barrett, dated a year after the 1976 memo, the writer told his superior, "Our use of DDVP is not in compliance with two sections of the EPA {Environmental Protection Agency} approved label for DDVP." The writer's recommendations -- including removal of all exposed cigarettes from trays in the manufacturing area before night-time DDVP spraying -- were not followed, Leake testified.

Leake said that following one of the memos, there was an internal investigation that showed that nozzles used to spray DDVP had to be "reorientated." When that was done, the DDVP levels in cigarettes "dropped greatly," Leake said. It was not clear which memo he referred to, or when this action was taken.

Leake said that a small fraction of DDVP -- best known as an ingredient in "No-Pest Strips" -- was found in company tests to "transfer" from cigarettes into their smoke. It was unclear when his finding was made.

He said ATCO had halted use of DDVP in its only cigarette plant -- in Reidsville -- in October, "shortly after we learned of" a National Toxicology Program (NTP) report on a study showing that DDVP was a carcinogen in animals. The NTP report was released in mid-July. Dickenson's deposition was taken shortly before ATCO stopped using DDVP.

Barrett also quoted from an EPA letter in November 1980 saying the agency was preparing to act against DDVP and other pesticides that were "possibly oncogenic," or tumor-inducing, as well as blood poisons. Currently, the EPA is preparing to put DDVP under "special review" -- its program for pesticides whose safety has come into question.

While Barrett alleged to the jury that "a Pall Mall cigarette is an adulterated, contaminated bunch of junk ... filled with cancer-causing agents," Upshaw argued that farmers used the same pesticides denounced by Barrett on vegetables and fruit.