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If the technology doesn't work aren't the shares worth little or nothing? Why bet on the future of the company if there's a cash settlement still possible?
I think they're trying to buy time. They really don't seem to have much of a foundation left to stand on.
Maybe there's a chance the IP is worth something.
Agreed. They patented all their 'ideas'. If they could not get them to work with todays tech does not mean that they cannot work in the future. The patents still hold...
So they are basically paying people, in potentially worthless shares, in order to stop being sued. I guess that makes sense because if they are sued then the shares will definitely become worthless. This is a cunning move but I would never accept it as an investor. Why accumulate even more shares in a dodgy company when suing might actually result in real cash you can actually spend.
No investor in their right mind will accept this deal. It's a foregone conclusion that Theranos is going under at some stage soon.

As you said, the shares are worth jack shit.