I thought they asked him to take a pay cut and he said no, so they cut him. Can't remember exactly though.
The Seahawks asked Reed to restructure his contract in a way that would not have reduced his compensation, but that would have had different cap accounting, freeing up more cap space (salary converted to signing bonus, void years added for cap-accounting purposes). The Seahawks needed that cap space at the time.
Reed wanted to negotiate a new three-or-more-year extension, but the Seahawks weren't interested in doing that at the time because of contract obligations to other players. Reed stood firm and refused to accept the restructure and informed the Seahawks he wanted to go elsewhere. The Seahawks couldn't find a worthwhile trade for Reed, so they released him.
EDITED to fix verb tense in the first sentence