<PAGE>

                                  EXHIBIT 10.2
                                  ------------


                              EMPLOYMENT AGREEMENT

          This Employment Agreement (the "Agreement") is dated as of January 1,
2001, between WATERSIDE CAPITAL CORPORATION, a Virginia corporation (the
"Company"), and GERALD T. MCDONALD (the "Executive").

                             PRELIMINARY STATEMENTS

     A.   Executive desires to continue employment with the Company at its
          office located in Norfolk, Virginia as treasurer and chief financial
          officer.

     B.   The Company and Executive desire to enter into this Agreement to
          establish the terms and conditions of Executive's employment with the
          Company.

          NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, the parties agree as
follows:

     1.   Employment Period.  The Company agrees to employ Executive and
Executive agrees to accept such employment for the period beginning November 1,
2000 and ending on the first to occur of (a) January 31, 2004 and (b) the
termination of Executive's employment pursuant to Section 7 (the "Employment
Period"); provided, however, the Employment Period shall be continued for
successive one-year periods unless at least 90 days before the end of the
initial or any subsequent term either the Company or the Executive gives the
other written notice of the termination of this Agreement.  If a change in
control (as defined) of the Company occurs during the original or any extended
term of this Agreement, the Employment Period (and all terms of this Agreement)
shall continue in effect for a period of 36 months beyond the month in which
such change in control occurred.

     2.   Services.  During the Employment Period, Executive shall render
such services of any executive and administrative character to the Company as
the Company's Executive Committee (the "Executive Committee") may from time to
time direct.  During the Employment Period, Executive shall devote his best
efforts and all of his business time and attention (except for vacation periods
and reasonable periods of illness or other capacity) to the business of the
Company.

     3.   Base Salary. During the Employment Period, the Company shall pay
Executive an annual base salary of $110,000.00 (the "Base Salary").  The Base
Salary shall be paid in arrears on the 15th day and the last day of each month
during the Employment Period.  The Base Salary will be reviewed by the Board of
Directors not less frequently than annually and may be increased in the sole
discretion of the Board of Directors, but in no event will the Base Salary be
less than $110,000.00 or as such amount may hereafter be increased.  Any
increase in Executive's Base Salary shall be made in accordance with Executive's
annual compensation plan as approved annually by the Executive Committee.

     4.   Bonuses.

          (a) The Company will develop a cash incentive bonus plan (the "Cash
Plan") and may, in the Company's sole discretion, pay Executive a bonus based on
the Cash Plan.  The Cash Plan shall be developed by a committee appointed by the
Company's Board of Directors, and the Executive will be a member of that
committee.

          (b) The Company has adopted an incentive stock option plan (the "Stock
Plan") for its key executives.  Executive has previously been granted incentive
stock options (as defined in Section 422 of the Internal Revenue Code) (the
"Executive Stock Option") under the Stock Plan.  The terms and conditions of the
Executive Stock Option are governed in all respects by the Stock Plan, and any
conflict between the Stock Plan and the terms of this Section 4(b) shall be
resolved by the terms of the Stock Plan.
<PAGE>

     6.   Benefits.


          (a) Executive shall be entitled to receive from the Company, in
addition to the salary set forth in Section 3, all benefits provided generally
to executive employees of the Company, including health insurance and major
medical insurance for Executive.  Executive may obtain family coverage for the
benefits granted pursuant to this Section 5, and in the event of same, the
Company shall pay one-third of the monthly premium cost and Executive shall be
responsible for the payment of two-thirds of the monthly premium costs.

          (b) Executive shall be entitled to 20 days of vacation leave time per
year, deemed earned at the end of each year of this Agreement.

          (c) Any alteration of the benefits that Executive is entitled to
receive from the Company shall be made in accordance with Executive's annual
compensation plan as approved by the Executive Committee.

     6.   Reimbursement of Expenses.  The Company shall reimburse Executive for
all normal and customary expenses incurred by Executive on behalf of the
Company; provided, however, that such expenses shall be approved in advance by
the Company.

     7.   Termination of Employment.

          (a) The Employment Period shall automatically end on Executive's
voluntary resignation, termination by the Executive Committee with cause
(defined below), or by Executive for good reason (defined below), termination by
the Executive Committee in the event of Executive's Disability (defined below)
or Executive's death; provided, that Executive's voluntary resignation shall be
effective not less than 90 days after Executive has given written notice thereof
to the President of the Company; provided further, that Executive's termination
by the Company with cause shall be effective only after the Executive Committee
has determined in its good faith judgment that such termination is in the best
interest of the Company, and written notice of such termination has been
delivered to Executive.

          (b) In the event of termination for disability, Executive shall be
entitled to be paid his salary by the Company and to receive the benefits set
forth in Section 5 for a period following such termination of 90 days.  Such
salary shall be payable semimonthly at the rate in effect at the time of
Executive's termination.  Executive shall have no duty to mitigate the Company's
damages by taking other employment after his termination by the Company without
cause, and any compensation earned by him in such other employment shall not be
deducted from any amount payable to him hereunder.  In the event of Executive's
disability, however, the amounts payable to him hereunder shall be reduced by
any amounts received by Executive from disability insurance purchased by the
Company for Executive.

             (1) Disability", for purposes hereof, means any physical or mental
condition that prevents Executive from performing his duties hereunder, for 180
days, whether or not consecutive, in any 12-month period.  The disability of
Executive will be determined by a medical doctor selected by mutual agreement of
the Company and Executive.  If the Company and Executive cannot agree on the
selection of a medical doctor, each of them will select a medical doctor and the
two medical doctors will select a third medical doctor who will determine
whether Executive has a disability.  The determination of the medical doctor
selected under this Section 7 will be binding on both parties.

             (2) "Cause" for which the Executive Committee may terminate
Executive's employment means: (i) Executive's conviction of a felony or of any
crime involving moral turpitude; or (ii) a breach or breaches of Executive's
fiduciary duty to the Company or its shareholders which individually or in the
aggregate are materially adverse to the Company's business or financial
condition or prospects.

             (3) "Good Reason" for Executive may terminate his employment means:
(i) the Company's material breach of this Agreement; (ii) the assignment of
Executive without his consent to a position, responsibilities or duties of a
materially lesser status or degree of responsibility than his position,
responsibilities or duties at the commencement of this Agreement; (iii) the
requirement that Executive be based anywhere other than Hampton Roads, Virginia;
or (iv) the Company's material reduction in the benefits provided to Executive,
including a material change in the Company's bonus plan, taken as a whole.
<PAGE>

          (c) If the Executive Committee determines, in its good faith judgment,
that Executive has committed a breach of fiduciary duty of a type justifying
termination with Cause, the Executive Committee may immediately terminate the
Executive.

          (d) If this Agreement is terminated by the Company without cause or by
the Executive for Good Reason, the Company shall pay Executive in a single lump
sum payment: (i) all compensation accrued in accordance with Section 3,
including the cash equivalent of the accrued, but unused vacation time earned in
accordance with Section 5(b) and the amount, if any, of incentive or bonus
compensation theretofore earned which has not yet been paid; and (ii) in lieu of
any further salary payments subsequent to the termination date, an amount equal
to two times Executive's base salary as then in effect, plus the average of the
bonuses received by Executive for each of the two years prior to the date of
termination or such shorter period as may be applicable.  The Company shall also
maintain in full force and effect, at the sole cost of the Company (except for
the regular contributions of Executive as described below, if any), for the
continued benefit of the Executive and his dependents for a period terminating
at the earliest of (a) 12 months after the date of termination, or (b) the
commencement date of equivalent benefits from a new employer, all insured and
self-insured employee welfare benefit plans in which Executive was entitled to
participate immediately prior to the date of termination, and Executive
continues to pay an amount equal to his regular contribution under such plans
prior to the date of termination for such participation.  In the event that
Executive's participation in any such plan is barred, the Company, at its sole
cost and expense, shall arrange to have issued for the benefit of Executive and
his dependents individual policies of insurance providing benefits substantially
similar (on after-tax basis) to those which Executive otherwise would have been
entitled to receive under such plans or, if such insurance is not available at a
reasonable cost to the Company, the Company shall otherwise provide Executive
and his dependents with equivalent benefits (on an after-tax basis).

          (e) On the termination of this Agreement, neither the Company nor
Executive shall have any continuing duties or obligations to the other except as
expressly provided in this Section 7; provided, however, that the duties and
obligations imposed on Executive pursuant to Section 8 shall continue in
accordance with the terms set forth therein, except that such duties and
obligations terminate with this Agreement if the Company does not make the
timely payments to Executive specified in Section 7(d)(i) and (ii).
Notwithstanding any other provision of this Agreement, Executive shall be
entitled to receive all compensation accrued in accordance with Section 3 and
shall be entitled to the cash equivalent of the accrued, but unused vacation
time earned in accordance with Section 5(b)

     8.   Restrictive Covenants

          (a) Confidential Information.  Executive acknowledges that all
computer systems, programs, reports, designs, drawings, memoranda, discoveries,
inventions, data, notes, records, files, proposals, plans, lists, documents and
any other information containing or referring to confidential or proprietary
information or concerning the business or affairs of the Company or any of its
contemplated investments (the "Proprietary Information"), whether prepared or
developed or both by Executive or others, and all copies thereof are property of
the Company.  Executive agrees that he shall not disclose to any unauthorized
person any Proprietary Information nor shall Executive use for his own interest
any Proprietary Information without the prior written consent of the Company,
which consent may be denied for any reason or no reason.  On the termination of
Executive's employment with the Company for any reason (or at any earlier time
that such request is made by the Company), Executive shall deliver to the
Company all Proprietary Information and any copies thereof which Executive may
possess or have under his control.

          (b) Non-Competition. The Executive agrees that, for so long as he is
employed by the Company and for two (2) years after the termination of the
Executive's employment with the Company for any reason (including but not
limited to Executive's voluntary resignation or Executive's termination of his
employment for Good Reason), Executive will not, without the prior written
consent of the Company, directly or indirectly, engage in or have an interest in
(as owner, partner, shareholder, employee, director, officer, consultant or
otherwise), with or without compensation, any business which is in competition
with the lines of business actually conducted by the Company during the
<PAGE>

Employment Period. Nothing herein, however, will prohibit the Executive from
acquiring or holding not more than five percent (5%) of any class of publicly
traded securities of any such business, provided that such securities entitle
the Executive to no more than five percent (5%) of the total outstanding votes
entitled to be cast by security-holders of such business in matters in which
such security-holders are entitled to vote.  In addition, nothing herein shall
prohibit Executive from engaging in or having an interest in any business that
does not compete with the Company's lines of business within a 150 mile radius
of the Company's office where Executive was assigned at the time his employment
terminated.

          (c)  Non-Interference.

             (1)  The Executive agrees and covenants that, for a period of one
(1)  year  after  the  date of  termination  of this  Agreement  for any  reason
(including but not limited to Executive's  voluntary  resignation or Executive's
termination of his employment for Good Reason), the Executive shall not, without
the prior written approval of the Board, Interfere directly or indirectly in any
way with the Company or any of its affiliated companies.

             (2) For purposes of this Agreement, "Interfere" shall mean, to
solicit, entice, persuade, induce, influence or attempt to influence, directly
or indirectly, clients or Prospective Clients, employees, agents or independent
contractors of the Company or any of its affiliated companies to restrict,
reduce, sever or otherwise alter their relationship with the Company or any of
its affiliated companies.

             (3) For purposes of this Agreement, "Prospective Clients" shall
mean persons or entities identified by the Company as prospective clients of the
Company  or any of its  affiliated  companies  within  12  months of the Date of
Termination  and with whom the  Company or such  affiliated  companies  have had
contact.

          (d) Severability and Reduction in Scope of Provisions. The covenants
 and agreements of the Executive contained in paragraphs (a) through (c) above
are separate and distinct covenants and agreements of the Executive and if any
part of any such paragraph is void, invalid or unenforceable, such paragraph
shall be severed from this Agreement and shall not affect or impair any other
paragraph or the balance of this Agreement, and this Agreement with the void,
invalid or unenforceable paragraph stricken from this Agreement shall remain in
full force and effect.  Further, the periods and scope of the restrictions set
forth in any such paragraph or subparagraph shall be reduced by the minimum
amount necessary to reform such paragraph or subparagraph to the maximum level
of enforcement permitted to the Company by the law governing this Agreement, if
such reform is permitted.

          (e) Validity of Covenant. The Executive agrees that the covenants
contained in this Section 8 are reasonably necessary to protect the legitimate
interests of the Company and its affiliated companies, are reasonable with
respect to time and territory, and do not interfere with the interests of the
public. The Executive further agrees that the descriptions of the covenants
contained in this Section 8 are sufficiently accurate and definite to inform the
Executive of the scope of the covenants. Finally, the Executive agrees that the
consideration provided for in this Agreement is full, fair and adequate to
support the Executive's obligations hereunder.

     9.   Arbitration.  Any controversy or claim relating to this Agreement,
including the construction of application of this Agreement, will be settled by
binding arbitration under the rules of the American Arbitration Association, and
any judgment granted by the arbitrator(s) may be enforced in any court of proper
jurisdiction.  Either party may invoke this paragraph after providing 30 days'
written notice to the other party.  Executive agrees to pay all costs of such
arbitration and to abide by the results if the Company prevails in the
arbitration.  The Company agrees to pay all the costs of the arbitration and to
abide by the results if Executive prevails in the arbitration.

     10.  Remedies.  The parties shall be entitled to enforce their rights
under this Agreement specifically to recover damages by reason of any breach of
any provision hereof and to exercise all other rights existing in their favor.
The Company and Executive agree and acknowledge that money damages may not be
adequate remedy for any breach by Executive of the provisions of this Agreement,
and that the Company may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief to enforce, or prevent any violations of, the provisions of this
Agreement.
<PAGE>

     11.  Modifications, Amendment, Waiver.  No modification, amendment or
waiver of any provision of this Agreement shall be effective unless set forth in
a writing signed by the Company and Executive and approved by the Executive
Committee.  The Company's or Executive's failure at any time to enforce any
provision of this Agreement shall in no way be construed as a wavier of such
provision and shall not affect the right of the Company and the Executive
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.

     12.  Prior Agreements.  This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof, and supersedes all prior
agreements of understandings (whether written or oral).

     13.  Severability.  Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such provision shall be effective only to the extent of such
invalidity, illegally or unenforceability in such jurisdiction, without
invalidating the remainder of this Agreement in such jurisdiction or any
provision hereof in any other jurisdiction.

     14.  Descriptive Headings.  The descriptive headings of this Agreement are
inserted for convenience and do not constitute part of this Agreement.

     15.  Choice of Law.  All questions concerning this construction, validity
and interpretation of this Agreement shall be governed by and interpreted in
accordance with the internal law, and not the law of conflicts, of the
Commonwealth of Virginia.

     16.  Notices.  All notices, demands or other communications to be given or
delivered under or by reason of any of the provisions of this Agreement shall be
in writing and shall, except as otherwise provided herein, be deemed to have
been given when delivered personally or mailed by certified or registered mail,
return receipt requested and postage prepaid:

  If to Executive:       Gerald T. McDonald
                         c/o Waterside Capital Corporation
                         300 East Main Street, #1380
                         Norfolk, Virginia 23510

  If to Company:         Waterside Capital Corporation
                         300 East Main Street, #1380
                         Norfolk, Virginia 23510
                         Attn:  President

  with a copy to:        John M. Paris, Jr., Esquire
                         Williams, Mullen, Clark & Dobbins
                         900 One Columbus Center
                         Virginia Beach, Virginia  23462

or to such other address as the recipient party has specified by prior written
notice to the sending party.

     17.  Change in Control Defined.  For all purposes of this Agreement, a
"Change in Control" shall mean:

          (a)  The acquisition by an individual, entity or group of beneficial
ownership of 20% or more of the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock");

          (b)  Individuals who, as of the date hereof, constitute the Board (the
"Incumbent  Board") cease for any reason to constitute a majority of such Board;
provided,  however,  that any individual  becoming a director  subsequent to the
date  hereof  whose  election,  or  nomination  for  election  by the  Company's
shareholders,  was approved by a vote of at least  two-thirds  of the  directors
them  comprising  the  Incumbent  Board  shall  be  considered  as  though  such
individual were a member of the Incumbent  Board, but excluding for this purpose
any such  individual  whose  initial  assumption of office occurs as a result of
either an  actual or  threatened  election  contest  by or on behalf of a person
other than the Board; or
<PAGE>

          (c)  Approval by the shareholders of the Company of either (1) a
reorganization,  merger, share exchange or consolidation of the Company by, with
or  into  any  other  corporation  or (2)  the  sale  or  disposition  of all or
substantially all of the assets of the Company.

     IN WITNESS, the undersigned parties have executed this Agreement as of the
date first written above.

                                   WATERSIDE CAPITAL CORPORATION


                                   By: /s/ J. Alan Lindauer
                                      -----------------------------
                                        J. Alan Lindauer, President


                                   EXECUTIVE:


                                   /s/ Gerald T. McDonald (SEAL)
                                       ------------------
                                       Gerald T. McDonald