A New York hedge fund recently went after one of David Stockton’s clients, launching a proxy battle for control of Alabama healthcare software company Emageon Inc. But instead of fighting a crippling battle to the death, it appears that the Kilpatrick Stockton partner reached a compromise with the activist investors on behalf of Emageon.

Stockton faced a formidable foe. The activist shareholder, Oliver Press Partners LLC, is led by Augustus “Gus” Oliver, a former Skadden, Arps, Slate, Meagher & Flom M&A partner whose activist hedge funds prompted big changes at Gillette and United Airlines in the 1980s. But Stockton’s foe also had a weak spot. One of the people Oliver Press Partners nominated to serve on Emageon’s board, Clifford Press, had an arrest record.

Oliver Press Partners this year launched a proxy battle for control of Birmingham, Ala.-based Emageon. Oliver Press Partners, which owns about 16.6 percent of Emageon’s outstanding stock, complained that Emageon wasn’t trying hard enough to sell itself and that its stock was “trading at an extreme discount valuation when compared to enterprise software trading levels,” according to regulatory filings.

But Emageon replied that it had sought buyers but had not received strong offers and that its stock price was in the toilet like other companies of its ilk. Emageon sells software to hospitals and healthcare-management organizations that allows doctors to view and manage digital medical images. Emageon said in a regulatory filing that it and its peers have been hammered by “decreases in government reimbursement programs.”

Instead of a proxy battle, Emageon and Oliver Press Partners cut a deal. Rather than ask all shareholders to vote on Oliver Press Partners’ slate of candidates, the two sides agreed to expand the size of Emageon’s board, and that three Oliver Press Partners nominees would join the board - Gus Oliver, Benner Ulrich and third director to be named later.

Clifford Press, whom Oliver Press Partners originally nominated, did not make the final list. Clifford Press had been arrested in March 2007 “for assaulting a 73-year old female motorist,” Emageon said in a regulatory filing. “We understand that these charges were later dismissed, but his arrest raises concerns about Mr. Press’ ability to react thoughtfully and carefully under stressful circumstances.”

In addition to expanding its board to make room for the Oliver Press Partners representatives, Emageon agreed that it would continue to pursue strategic alternatives, including a sale of the company.

Stockton [see photo, right] declined to comment on the proxy battle. Lowenstein Sandler partner Allen B. Levithan in Roseland, N.J. was adviser to Oliver Press Partners.