If Linda owes Linda $100 and the stock price is $0.25 and wants to pay it in shares, it takes 400 shares to square up Linda. If the stock price is $1, it only takes 100 shares.
So Linda, thinking the stock price is going to get to $10 anyway, would naturally rather the price be $0.25 rather than $1, so she can get paid 400 shares and have $4000 later, rather than get paid 100 shares and only have $1000 later.
I don’t quite understand your reasoning that Linda is diluting the stock for her own benefit. If she were to receive 100 shares with less dilution instead of 400, she would probably expect the stock price to rise to $40, not $10.
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