<PAGE>   1
                                                                 EXHIBIT 10.30


                              EMPLOYMENT AGREEMENT


             THIS EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of December
29, 1995, is between UroHealth Systems, Inc., a Delaware corporation (the
"COMPANY"), and Paul E. Petersen, Jr.

             A.     The Company desires to obtain the services of Employee, on
its own behalf and on behalf of all existing and future "AFFILIATED COMPANIES"
(defined as any corporation or other business entity or entities that directly
or indirectly controls, is controlled by, or is under common control with the
Company), and Employee desires to accept employment with the Company upon the
following terms and conditions.

             B.     The Company has spent significant time, effort and money to
develop certain Proprietary Information (as defined below), which the Company
considers vital to its business and goodwill.

             C.     The Proprietary Information will necessarily be
communicated to or acquired by Employee in the course of his employment with
the Company, and the Company desires to obtain the services of Employee, only
if, in doing so, it can protect its Proprietary Information and goodwill.

ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:

             1.     Period of Employment.

                    (a)    The Company hereby employs Employee to render
services to the Company in the position and with the duties and
responsibilities described in Section 2 for the period (the "PERIOD OF
EMPLOYMENT") beginning December 29, 1995 and ending on the earlier of (i)
December 29, 1996, as the same may be extended pursuant to Section 1(b) below
(the "TERM DATE"), and (ii) the date the Period of Employment is terminated in
accordance with Section 4.  This Agreement shall only become effective if the
merger of a wholly-owned subsidiary of the Company with and into Osbon Medical
Systems Ltd. ("OSBON") pursuant to which Osbon becomes a wholly-owned
subsidiary of the Company is consummated.

                    (b)    Unless earlier terminated in accordance with Section
4, this Agreement shall automatically renew for an additional one-year term on
the first and second anniversaries of the date of this Agreement.

             2.     Position, Duties and Responsibilities.

                    (a)    Position.  Employee hereby accepts employment with
the Company as Senior Vice President Sales and Marketing- Impotence Division
(or, with the approval of Employee, in such other position(s) as the Chief
Executive Officer of the Company shall designate).  Employee shall devote his
best efforts and his full time and attention to the performance of the services
customarily incident to such office and to such other services as may
<PAGE>   2
be reasonably requested by the Chief Operating Officer of the Company, with the
approval of the Chief Executive Officer of the Company.

                    (b)    Full-Time Employment.  Employee shall devote full
time to Employee's employment, and shall expend best efforts on behalf of the
Company.  Employee agrees that while employed by the Company, Employee will not
engage in any other employment or business which could interfere with the
performance of Employee's duties to the Company, or compete with the Company in
any way.  Employee agrees to abide by all policies and decisions of the Company
during the term of this Agreement.

                    (c)    Competitive Plans.  Employee agrees not to take any
preliminary steps to set up or engage in any business enterprises that would
compete in any way with the Company during the term of this Agreement.  While
employed by the Company, Employee agrees to divulge to the Company any and all
competitive plans which Employee may have under consideration, whether or not
Employee intends to act upon them.  As used in the preceding sentence, the term
"competitive plans" shall include, but not be limited to, plans to set up,
establish or engage in a business enterprise in competition with the Company,
and plans to seek or accept employment from anyone in competition with the
Company.

                    (d)    Business Opportunities.  Employee agrees promptly
and fully to disclose to the Company, and not to divert to Employee's own use
or benefit, or the use or benefit of others, any business opportunities
involving any past, existing or prospective lines of business, suppliers,
products or other business activities of the Company, or any other business
opportunities that should otherwise be disclosed to the Company.

             3.     Compensation, Benefits and Expenses.

                    (a)    Compensation.  In consideration of the services to
be rendered hereunder, including, without limitation, services to any
Affiliated Company, Employee shall be paid an annual salary $125,000, payable
in 26 equal installments at the times and pursuant to the procedures regularly
established, and as they may be amended, by the Company during the term of this
Agreement.

                    (b)    Bonus.  Employee shall receive commissions and
bonuses with respect to activities during calendar year 1995 in accordance with
Schedule A hereto.  Thereafter, Employee shall participate in the bonus program
for Senior Management of the Company which plan has been approved by the
President of the Company and adopted by the Compensation Committee of the Board
of Directors (the "BOARD").

                    (c)    Benefits.  As he becomes eligible therefor, the
Company shall provide Employee with the right to participate in and to receive
benefits from all present and future life, accident, disability, medical,
pension and savings plans and all similar benefits, including stock options,
made available generally to the Company's other similarly situated employees.
The amount and extent of benefits to which Employee is entitled shall be
governed by the specific benefit plan, as it may be amended from time to time.


                                      2
<PAGE>   3
                    (d)    Vacation.  Employee shall be entitled to three weeks
of vacation per year, exclusive of Company holidays.

                    (e)    Expenses.  The Company shall reimburse Employee for
reasonable travel and other business expenses incurred by Employee in the
performance of his duties hereunder in accordance with the Company's general
policies, as they may be amended from time to time during the term of this
Agreement.

             4.     Termination of Employment.

                    (a)    By Death.  The Period of Employment shall terminate
automatically upon the death of Employee.  The Company shall pay to Employee's
beneficiaries or estate, as appropriate, the compensation to which he is
entitled pursuant to Section 3(a) through the end of the month in which death
occurs.  Thereafter, the Company's obligations hereunder shall terminate.
Nothing in this section shall affect any entitlement of Employee's heirs to the
benefits under any life insurance plan.

                    (b)    By Disability.  If, in the sole opinion of the
Board, Employee shall be prevented from properly performing his duties
hereunder by reason of any physical or mental incapacity for a period of more
than 150 days in the aggregate or 120 consecutive days in any twelve-month
period, then, to the extent permitted by law, the Period of Employment shall
terminate on and the compensation to which Employee is entitled pursuant to
Section 3(a) shall be paid up through the last day of the month in which the
Board determines Employee to be disabled hereunder, and thereafter the
Company's obligations hereunder shall terminate.  Nothing in this section shall
affect Employee's rights under any disability plan in which he is a
participant.

                    (c)    By Company For Cause.  The Company may terminate,
without liability, the Period of Employment for Cause (as defined below) at any
time upon 30 days' advance written notice to Employee.  The Company shall pay
Employee the compensation to which he is entitled pursuant to Section 3(a)
through the end of the notice period and thereafter the Company's obligations
hereunder shall terminate.  Termination shall be for "CAUSE" if:  (i) Employee
has engaged in illegal or other wrongful conduct substantially detrimental to
the business or reputation of the Company or any Affiliated Company, or is
convicted of a felony; (ii) Employee refuses or fails to act in accordance with
any reasonable direction or order of the Board or the Chief Executive Officer
of the Company; provided, that the Board or the Chief Executive Officer has
given Employee written notice of such refusal or failure and Employee fails to
comply with such direction or order within 30 days after the date of such
notice; or (iii) Employee has engaged in any fraud, embezzlement,
misappropriation or similar conduct against the Company; provided, that the
provisions of this clause (iii) shall not apply to any unintentional
expenditures by Employee which is later determined to be personal so long as
Employee promptly reimburses the Company for such expenditure upon notice by
the Company of the personal nature of such expenditure.  Failure of Employee to
move from Augusta, Georgia upon the Company's request shall not constitute
Cause.  Any determination by the Company to terminate this Agreement for Cause
shall be made by the Board.





                                       3
<PAGE>   4
                    (d)    By Company Without Cause.  The Company may terminate
the Period of Employment without Cause at any time upon 90 days' advance
written notice to Employee. Upon such termination, the Company shall pay
Employee a lump sum payment of an amount equal to the amount of compensation to
which he is entitled pursuant to Section 3(a) and 3(b) (using for purposes of
Section 3(b) the amount of bonus earned by Employee in 1995), for the remainder
of the Period of Employment which shall for purposes of this subsection (d)
shall include the renewals contemplated by Section 1(b) above, and thereafter
all obligations of the Company hereunder shall terminate.

                    (e)    Termination Obligations.

                           (i)    Employee hereby acknowledges and agrees that
all personal property, including, without limitation, all books, manuals,
records, reports, notes, contracts, lists, blueprints and other documents, or
materials, or copies thereof, Proprietary Information (as defined below),
furnished to or prepared by Employee in the course of or incident to his
employment, including, without limitation, records and any other materials
pertaining to Invention Ideas (as defined below), belong to the Company.

                          (ii)    Upon termination of the Period of Employment,
Employee shall be deemed to have resigned from all offices then held with the
Company or any Affiliated Company.

                           (iii)  The representations and warranties contained
herein and Employee's obligations under Sections 4(e) and 6 shall survive
termination of the Period of Employment and the expiration of this Agreement.

             5.     Change of Control.  Following a "Change of Control,"
Employee shall be entitled to terminate his employment hereunder, with or
without Good Reason, upon 30 days advance written notice to the Company given
at any time during the one-year period after the Change of Control.  In the
event that Employee terminates his employment pursuant to this Section 5 with
Good Reason after a Change of Control, he shall be entitled to receive a lump
sum payment upon such termination of an amount equal to one times the total
salary and bonus compensation paid to Employee by the Company pursuant to
Section 3(a) and 3(b) for the twelve months immediately preceding the Change of
Control; provided, however, that if the severance payment under this Section 5,
either alone or together with other payments which Employee has the right to
receive from the Company, would not be deductible (in whole or in part) by the
Company as a result of such payment constituting a "parachute payment" (as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code")), the severance payment provided under this Section 5 shall be reduced
to the maximum deductible amount under the Code.  For purposes of this
Agreement, a Change of Control of the Company shall be deemed to have occurred
if (i) there shall be consummated (x) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company's Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger, (y) any reverse merger in which the





                                       4
<PAGE>   5
Company is the continuing or surviving corporation but in which securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from
those who hold such securities immediately prior to the merger, or (z) any
sale, lease, exchange or other transfer (in one transaction or series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the stockholders of the Company approve a plan or proposal for
the liquidation or dissolution of the Company, or (iii) any "person" (as
defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), shall become the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20% or more
of the Company's outstanding Common Stock (other than as a result of a stock
purchase or purchases made by such person directly from the Company), or (iv)
during any twelve-month period, individuals who at the beginning of such period
constitute the entire Board of Directors of the Company shall cease for any
reason to constitute a majority thereof unless the election, or the nomination
for election by the Company's stockholders, of each new director was approved
by a vote of at least a majority of the directors then still in office who were
directors at the beginning of the period.  For purposes of this Section 5,
"GOOD REASON" shall exist if there is an assignment to Employee of any duties
materially inconsistent with or which constitute a material change in
Employee's position, duties, responsibilities or status with the Company.

             6.     Proprietary Information.

                    (a)    Defined.  "PROPRIETARY INFORMATION" is all
information and any idea in whatever form, tangible or intangible, pertaining
in any manner to the business of the Company or any Affiliated Company, or to
its clients, consultants or business associates, unless: (i) the information is
or becomes publicly known through lawful means; (ii) the information was
rightfully in Employee's possession or part of his general knowledge prior to
his employment by the Company; or (iii) the information is disclosed to
Employee without confidential or proprietary restriction by a third party who
rightfully possesses the information (without confidential or proprietary
restriction) and did not learn of it, directly or indirectly, from the Company.

                    (b)    General Restrictions on Use.  Employee agrees to
hold all Proprietary Information in strict confidence and trust for the sole
benefit of the Company and not to, directly or indirectly, disclose, use, copy,
publish, summarize or remove from the Company's premises any Proprietary
Information (or remove from the premises any other property of the Company),
except (i) during the Period of Employment to the extent necessary to carry out
Employee's responsibilities under this Agreement , and (ii) after termination
of the Period of Employment as specifically authorized in writing by the Board.

                    (c)    Interference with Business; Competitive Activities.
Employee acknowledges that pursuit of the activities prohibited by this Section
6(c) would necessarily involve the use or disclosure of Proprietary Information
in breach of Section 6(b), but that proof of such breach would be extremely
difficult.  To prevent such disclosure, use and breach and in consideration of
employment under this Agreement, Employee agrees for a period of one year after
termination of the Period of Employment, he shall not for himself or any third
party, directly or indirectly, (i) divert or attempt to divert from the Company
(or any Affiliated





                                       5
<PAGE>   6
Company) any business of any kind in which it is engaged, including, without
limitation, the solicitation of or interference with any of its suppliers or
customers, (ii) employ, solicit for employment, or recommend for employment any
person employed by the Company, or any Affiliated Company, during the period of
such person's employment and for a period of one year thereafter, or (iii)
engage in any business activity that is competitive with the Company, unless
Employee can prove that action taken in contravention of this Section 6(c)(iii)
was done without the use of any Proprietary Information.  For purposes of this
Section 6(c), "competitive activities" shall be business activities that are
directly competitive with an existing or presently planned business of the
Company on the date of termination, which activity constitutes or is
anticipated to constitute more than 15% of revenues of the Company.

                    (d)    Remedies.  Nothing in this Section 6 is intended to
limit any remedy of the Company under the California Uniform Trade Secrets Act
(California Civil Code Section  3426), or otherwise available under law.

             7.     Assignment; Successors and Assigns.

                    Employee agrees that he will not assign, sell, transfer,
delegate or otherwise dispose of, whether voluntarily or involuntarily, or by
operation of law, any rights or obligations under this Agreement , nor shall
Employee's rights be subject to encumbrance or the claims of creditors.  Any
purported assignment, transfer or delegation shall be null and void.  Nothing
in this Agreement  shall prevent the consolidation of the Company with, or its
merger into, any other corporation, or the sale by the Company of all or
substantially all of its properties or assets, or the assignment by the Company
of this Agreement and the performance of its obligations hereunder to any
successor in interest or any Affiliated Company.  Subject to the foregoing,
this Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
permitted assigns, and shall not benefit any person or entity other than those
enumerated above.

             8.     Notices.  All notices or other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand or mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed to the Company at:

                      UroHealth Systems, Inc.
                      3050 Redhill Avenue
                      Costa Mesa, California 92626
                      Attn: Board of Directors

     or to Employee at:

                            ---------------------------------
                            ---------------------------------
                            ---------------------------------
                            ---------------------------------





                                       6
<PAGE>   7
Notice of change of address shall be effective only when done in accordance
with this section.

             9.     Entire Agreement.  The terms of this Agreement  are
intended by the parties to be the final expression of their agreement with
respect to the employment of Employee by the Company and may not be
contradicted by evidence of any prior or contemporaneous agreement.  The
parties further intend that this Agreement  shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative or other legal proceeding
involving this Agreement .

             10.    Amendments; Waivers.  This Agreement may not be modified,
amended or terminated except by an instrument in writing, signed by Employee
and by a duly authorized representative of the Company other than Employee.  By
an instrument in writing similarly executed, either party may waive compliance
by the other party with any provision of this Agreement that such other party
was or is obligated to comply with or perform, provided, however, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure.  No failure to exercise and no delay in exercising any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy or power hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy or power provided herein or by law or in equity.

             11.    Severability; Enforcement.  If any provision of this
Agreement , or the application thereof to any person, place or circumstance,
shall be held by a court of competent jurisdiction to be invalid, unenforceable
or void, the remainder of this Agreement and such provisions as applied to
other persons, places and circumstances shall remain in full force and effect.

             12.    Governing Law.  The validity, interpretation,
enforceability and performance of this Agreement  shall be governed by and
construed in accordance with the law of the State of California.

             13.    Injunctive Relief.  The parties agree that in the event of
any breach or threatened breach of any of the covenants in Section 5, the
damage or imminent damage to the value and the goodwill of the Company's
business will be irreparable and extremely difficult to estimate, making any
remedy at law or in damages inadequate. Accordingly, the parties agree that the
Company shall be entitled to injunctive relief against Employee in the event of
any breach or threatened breach of any such provisions by Employee, in addition
to any other relief (including damages) available to the Company under this
Agreement or under law.





                                       7
<PAGE>   8
             The parties have duly executed this Agreement as of the date first
written above.




                                       Paul E. Petersen, Jr.
                                       ---------------------        




                                       UROHEALTH SYSTEMS, INC.


                                       By James L. Johnson
                                          ----------------          
                                          James L. Johnson
                                          Executive Vice President





                                       8