Unless you have a lawyer on retainer and don't mind fighting an ongoing legal battle, I'd do everything they demand, including transferring the domain immediately. You could try to negotiate, but I'd imagine they have absolutely no problem taking this to court, where they'd probably demand at least part of your lifetime revenue due to the trademark infringement (as well as everything for which they've already asked). Would you be ready to fight an almost certainly losing battle in front of a judge?
