Ask HN: Help, Investor wants money back in 7 days "Or else"

We recently sold a total of 22% share of our established company to an investor that also wanted to work for us as director of Sales. The person had a large rolodex in a segment of our market that we had not been able to tap and felt they could bring a lot to the table as an employee. So we put together some additional vesting based on rev targets all tied to being employed. The investment granted preferred shares and a seat on the board, voting is with ownership % and it takes 67% to pass.

So here we are 8 weeks after the deal, and things could not have gone worse. From day 1 the employee made it clear they did not intend to do sales, but instead had a "vision" for the company and wanted to run it. They first tried to buy out the CEO and president to do so, but we refused. After that they refused to work the sales plan we had developed, refused to be accountable to any touches/sales goals, hired staff without budget approval, purchased equipment/services without approval (sometimes express disapproval), took 20% vacation days, worked 10-4, and walked out of 3 meetings. The person basically would take no direction or training from the CEO (their agreed upon boss) and eventually moved out of the office to setup an office in another location. When called out on this behavior the person threatened to suit for all sorts of things, hostile work environment being #1 - they also threatened to pull their investment 3 times, including 3 working days in!

So here we are now, we have made it very clear that the employment will not continue like this, and have started the process of removing the job with cause. Seeing that coming they have requested to reverse the deal and demand we return the full investment in 1 week, or they can "do it the hard way". They would like to reverse everything so that it is like it never happened. There is nothing in our agreement that covers this, besides them selling their shares, the employment is not guaranteed on paper. We too would like them out of the company for obvious reasons but there are issues with this demand:

1. 7 days it a short amount of time to come up with 400k 2. a lot of the investment has been committed (in good faith) to salaries and equipment, included the salary paid to the investor for "working" in the sales role (which yielded 0 sales, 1 presentation, and 0 estimates) 3. Some of the investment bought personal stock from one of the owners. So that money is taxed, been used to delete debt, and not in the company. 4. They know all our IP from having access to literally everything from basecamp to 3yrs of client sales data, our staff and to how we do what we do. They have made it very clear they want to turn around and open a directly competing company as soon as they leave.

Anytime we push back on these issues they again threaten to suit, and they remind us they have a huge pile of cash for that and we don't.

We have offered to buy back 185K of their stock immediately, and the rest by the end of the year from accounts receivable. We think this would be more realistic, doing the buy back much faster would starve the company of cash, and very well put us negative on cash-flow. We are also asking that the existing non-compete, non-disparagement, and NDA they signed still stand. I also feel like the 30K spent on their salaries should be deducted from the buyback.

Of course we think this is all total BS, and the "right" thing to do is to suit them, but that is not our DNA, and would jeopardize the company we have now (growing revenues at 125% a year for the past 3 years).

I know what we did wrong, trust me, but what do you think we should do now to finish this?