This is actually not so far fetched. A buy-sell agreement like this is not uncommon, but it's often structured where one founder can buy the other out at any t

This is actually not so far fetched. A buy-sell agreement like this is not uncommon, but it's often structured where one founder can buy the other out at any time for any proposed amount... But MUST be willing to sell for the amount they are proposing to buy for. i.e. If you wanted to buy me out for $100, I can either sell for $100 or buy YOU out for $100. Fairly elegant. In this case, however-- it doesn't seem like there's much value there if you're taking loans to pay people. If the company is in debt, you should offer to buy the company for the cost of the debt and perhaps (depending on how much he contributed before this lackluster year) give him a token % of equity (less than 3% if you're on a funding/liquidity path, less than 10% if it's more of a lifestyle/sustainable biz). There are two sides, but from the way you describe it, he doesn't deserve much of anything.