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                                                                    EXHIBIT 10.2

                            INDEMNIFICATION AGREEMENT

                  This Indemnification Agreement ("Agreement") is made as of
this ___ day of _______, 2000 by and between Shelbourne Properties III, Inc., a
Delaware corporation (the "Company") and _____________________("Indemnitee").

                  WHEREAS, the Company desires to attract and retain the
services of highly qualified individuals, such as Indemnitee, to serve as
directors and/or executive officers of the Company; and

                  WHEREAS, the Company recognizes Indemnitee's need for
protection against personal liability, and in order to assure Indemnitee's
continued service to the Company, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to
Indemnitee.

                  NOW, THEREFORE, the Company and Indemnitee hereby agree as
follows:

         1. Indemnification.

                  a. Third-Party Proceedings. The Company shall indemnify
Indemnitee to the full extent permitted now or hereafter by applicable law, as
from time to time amended, subject to the exceptions provided in Section 8 of
this Agreement. Without limiting the foregoing but subject to the provisions of
this Agreement, the Company shall indemnify Indemnitee if Indemnitee is or was a
party or is threatened to be made a party to any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of Indemnitee's past, present or future service as a director or executive
officer of the Company, or, at the Company's request, of another enterprise or
entity in which the Company had, directly or indirectly, an interest at the time
of such service, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with investigating, preparing
for, defending or settling such action or proceeding. The Company hereby agrees
to indemnify Indemnitee's spouse (whether by statute or at common law and
without regard to the location of the governing jurisdiction) and children
(including by way of adoption) as express third-party beneficiaries hereunder to
the same extent and subject to the same limitations applicable to Indemnitee
hereunder for claims arising out of the status of such person as a spouse or
child of Indemnitee, including claims seeking damages from marital property
(including community property) or property held by Indemnitee and such spouse or
property transferred to such spouse or child. The indemnification provided under
this Agreement may not be amended, modified or limited in a manner adverse to
the rights of Indemnitee without the consent of Indemnitee, and Indemnitee shall
be deemed to be serving in his capacity as an officer and/or director of the
Company in reliance on the terms of this Agreement.

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                  b. Proceedings By or in the Right of the Company. Subject to
the provisions of this Agreement, the Company shall indemnify Indemnitee if
Indemnitee was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding by or in the right of the
Company or any subsidiary of the Company to procure a judgment in its favor by
reason of Indemnitee's past, present or future service as a director or officer
of the Company, or, at the Company's request, of another enterprise or entity in
which the Company had, directly or indirectly, an interest at the time of such
service, against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with investigating,
preparing for, defending or settling such action or proceeding.

         2. Expenses; Indemnification Procedure.

                  a. Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined, in
accordance with Section 2(c), that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.

                  b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Such notice shall contain the written affirmation of Indemnitee that
the standard of conduct necessary for indemnification hereunder has been
satisfied. Notice to the Company shall be directed to the President of the
Company in the manner provided in Section 13 hereof. Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power. A delay in giving notice under this Section
2(b) shall invalidate the Indemnitee's right to indemnity under this Agreement
only to the extent that such delay prejudices the defense of the claim or the
availability to the Company of insurance coverage for such claim.

                  c. Procedure. Any indemnification provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Certificate of Incorporation or Bylaws,
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof that complies
with the requirements of this Agreement has first been received by the Company,
Indemnitee may, but need not, at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and, subject to Section 12 of
this Agreement, Indemnitee shall also be entitled to be paid for the expenses
(including attorneys' fees) of bringing such action. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in connection with any action or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct that made it
permissible under applicable law


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for the Company to indemnify Indemnitee for the amount claimed, but Indemnitee
shall be entitled to receive interim payments of expenses pursuant to Subsection
2(a) unless and until such defense may be finally adjudicated by court order or
judgment from which no further right of appeal exists. It is the parties'
intention that if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel or its equity holders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable law, nor an
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel or
its equity holders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.

                  d. Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company have directors'
and officers' liability insurance in effect, the Company shall give prompt
notice of the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such proceeding
in accordance with the terms of such policies.

                  e. Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, unless Indemnitee determines that a conflict of
interest exists between the Indemnitee and the Company with respect to a
particular claim, shall be entitled to assume the defense of such proceeding,
with counsel approved by Indemnitee, which approval shall not be unreasonably
withheld, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding; provided that (i) Indemnitee
shall have the right to employ his own separate counsel in any such proceeding
in addition to or in place of any counsel retained by the Company on behalf of
Indemnitee at Indemnitee's expense, and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.

         3. Nonexclusivity of Indemnification Rights. The indemnification
provided by this Agreement shall not be deemed exclusive of any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation or
Bylaws, any agreement, any vote of equity holders or disinterested Directors,
applicable law, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office.


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         4. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.

         5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken and may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company' right under public
policy to indemnify Indemnitee.

         6. Directors' and Officers' Liability Insurance. The Company currently
intends to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the directors and officers of the Company with
coverage for losses from wrongful acts, or to ensure the Company's performance
of its indemnification obligations under this Agreement, subject to its good
faith determination from time to time whether or not it is practicable for the
Company to obtain or maintain such insurance. Among other considerations, the
Company will weigh the costs of obtaining such insurance coverage against the
protection afforded by such coverage. In all policies of directors' and
officers' liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.

         7. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. the Company' inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.

         8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify Indemnitee in the following circumstances:

                  a. Excluded Acts. The Company shall not be obligated to
indemnify Indemnitee for any acts or omissions or transactions from which a
person serving in Indemnitee's capacity


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with respect to the Company may not be relieved of liability under the
jurisdiction of the Company's organization;

                  b. Claims Initiated by Indemnitee. The Company shall not be
obligated to indemnify or advance expenses to Indemnitee with respect to
proceedings or claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statute or
law in accordance with Section 1(b) hereof, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Company's Board of Directors or general partner, as applicable, has approved the
initiation or bringing of such suit;

                  c. Insured Claims. The Company shall not be obligated to
indemnify Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) to the extent that Indemnitee has
otherwise actually received payment, or payments have been made on behalf of
Indemnitee, with respect to such expense or liability (under any insurance
policy or provision of the Company's Certificate of Incorporation or Bylaws, or
otherwise) of amounts otherwise indemnifiable hereunder; or

                  d. Claims Under Section 16(b). The Company shall not be
obligated to indemnify Indemnitee for expenses and the payment of profits
arising from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar
successor statute.

         9. Construction of Certain Phrases.

                  a. For purposes of this Agreement, references to "the Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees, or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.

                  b. For purposes of this Agreement, references to "another
enterprise" or "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer, employee or
agent of the Company which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries.

         10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute a single agreement.


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         11. Successors and Assigns. This Agreement shall be binding upon the
Company and its respective successors and assigns, and shall inure to the
benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and
assigns.

         12. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including reasonable attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.

         13. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to any party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.

         14. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.


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

                                  SHELBOURNE PROPERTIES III, INC.


                                  By:
                                     --------------------------------
                                  Name:
                                  Title:
                                  Address:    5 Cambridge Center
                                              9th Floor,
                                              Cambridge, MA 02142



AGREED TO AND ACCEPTED:


INDEMNITEE:


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

Address: