I need a document that both parties will sign agreeing not to sue each other

What kind of document would this be called?

A little background:
Party#1 is the programmer contracted to help build my website. He has signed an NDA/work for hire. Over the last couple months he thinks that he is owed something like 250 hours of coding, when he barely did anything and most of the coding he did was at a very amateur level and took forever. We have already payed him the average amount someone would get payed for a project of this size. He was promised a partnership if he had proven himself. He hasn't. Now he is mad and deleted the code from our servers and even our customers from the database. He is using extortion in asking for $$$ for the code and also threatening to sell the license for the code. He thinks he owns the code even though he signed an NDA/work for hire that specifically states that the code is owned by my company.

Party#2 is my company. We believe we have ground on his malicious acts(extortion and theft) against us. We don't want to take legal action towards this. We just want a document that both parties sign saying that we are done with each other and are ready to move on without taking any legal action.

The two outcomes if he didn't agree to this would be:
1.Him fighting us to receive money.
2. Us fighting him against deleting code and our database.

The best result for both of us would be to just move on. So I am looking for the name of a document that would finalize this situation.

any answers are appreciated.

If he is threatening you, why do you think he would sign a document like this? You need to think about your negotiating position - which is difficult because he holds most of the cards.

Firstly - will he sue or is it just bluster? Believe me, you don't want to go down the legal route. Do you think he has the money to sue you? How much is he asking for? If he is not asking for a lot and you don't think he has a lot of assets behind him, he is unlikely to sue in my opinion. Firstly because it is too expensive and secondly because (if you have done your contracts right) he doesn't have any grounds - as any lawyer will tell him.

Secondly, how can you move the business on from here? Issues like this take up a lot of time and emotional energy. If you get too caught up in this, the business will suffer, perhaps fatally. What do you need to do to move forward? Obviously stopping his server access is the first step. Re-establishing relationships with your customers is the second step. I would think about getting the coding done again by someone competent who can rebuild it quickly for you (and you will hire a lot better this time for sure! :-) and keep backups ). That will put you in a strong negotiating position where you don't need to worry about what this other guy does and you can continue to build your business putting in the safeguards you need so this doesn't happen again.

You need to draft and sign with him an "amicable settlement agreement".

Something like this: http://contracts.onecle.com/ascential/dexmier.sep.2000.09.13.shtml.
Your situation looks kind of unique and delicate, so I'd recommend you hire an attorney for this, rather than using a random form found on the internet.

Do not feel a document like this can be legally valid. If you do not want to sue each other, you have to provide for an alternative dispute resolution mechanism such as arbitration.

Alternatively, you can prepare a settlement agreement, where you pay $$$ against the code, database and no legal case guarntee. You, it appears, can not continue doing business with such a document / agreement. Normally no agreement can stop right to legal help. You have to provide an alternative mechanism.