Under the deal, Oak Brook, Ill.-based RC2 Brands will offer cash refunds or replacement toys, plus what the company calls a bonus toy; it also promises to implement new quality controls, says Jay Edelson, a plaintiffs’ attorney in the case.

The lawsuit was filed in the Circuit Court of Cook County last year, and the court gave the settlement preliminary approval last week. The judge is expected to give final approval at a hearing set for May 6.

RC2 CEO Curt Stoelting welcomed the preliminary agreement, saying in a statement that it “builds upon the many steps that we’ve taken to replace recalled products and improve product safety” and will help “continue to build parents’ trust.”

In June 2007, the Consumer Product Safety Commission announced that RC2 was voluntarily recalling about 1.5 million items in what would become the first of several major roundups involving lead paint on toys made in China. By mid-September, RC2 had recovered about 1 million items, sending bonus gifts to customers who returned a product.

But that goodwill gesture flopped when further testing showed that lead in the paint on about 2,000 Toad train cars in the bonus shipment was up to four times higher than acceptable levels. RC2 then recalled the affected Toads, along with about 200,000 other Thomas items.

The company—which had 2006 sales of about $500 million—has dropped its supplier, Hansheng Wood Products, which made the Toad pieces as well as the items in the first recall.