Exhibit 10.5
INCO LIMITED
NON-EMPLOYEE DIRECTOR SHARE OPTION PLAN

1.   Purpose.

          The purpose of the Inco Limited 2002 Non-Employee Director Share
Option Plan (the “Plan”) is to advance the interests of (a) Inco Limited, a
corporation organized under the laws of Canada (the “Company”), and its
subsidiaries and affiliates and (b) the Company’s shareholders by (i) assisting
the Company in attracting and retaining highly qualified members of the Board of
Directors of the Company who are not full-time or part-time employees of the
Company or any subsidiary of the Company (“Non-Employee Directors”),
(ii) providing additional motivation to such Non-Employee Directors through
performance related incentives to assist the Company to achieve its long range
performance and strategic goals and (iii) enabling Non-Employee Directors to
increase their participation in the Company’s growth and financial success by
giving them the opportunity to obtain additional Common Shares of the Company
(the “Common Shares”).

2.   Plan Administration.

          (a)     The Plan shall be administered by the Corporate Governance and
Nominating Committee (the “Committee”) of the Board of Directors of the Company
(the “Board”).
          (b)     The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Award Agreements (as hereinafter defined), (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its operations, (iv) to make all determinations
necessary or advisable in administering the Plan, (v) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, (vi) to amend
the Plan to reflect changes in applicable law, and (vii) to accelerate the
exercisability of any Award (as hereinafter defined) granted hereunder.
          (c)     Actions of the Committee shall be taken by the vote of a
majority of its members. Any action may be taken by a written instrument signed
by all the Committee members and any action so taken shall be fully as effective
as if it had been taken by a vote at a meeting.
          (d)     The determination of the Committee on all matters relating to
the Plan or any Award Agreement shall be final, binding and conclusive for all
purposes and upon all persons including, but without limitation, the Company,
its subsidiaries and affiliates, the Committee, the Board, the Non-Employee
Directors and their respective successors and assigns.
          (e)     No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award.
          (f)     Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, grant
Awards or resolve to administer the Plan. In such event, the Board shall have
all of the authority and responsibility granted to the Committee herein.

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3.   Eligibility.

          Each Non-Employee Director is eligible to receive grants of options to
purchase Common Shares (“Awards”) under Section 5.

4.   Shares Subject to the Plan.

          Subject to adjustment as provided in Section 8, the number of Common
Shares available and reserved for the grant of Awards under the Plan shall not
exceed 300,000 Common Shares. The shares issued under the Plan shall be
authorized and unissued Common Shares. Common Shares subject to or underlying an
Award that expires unexercised, or is forfeited, terminated or cancelled, shall
thereafter be available for grant under the Plan. The number of shares reserved
for issuance to any one person pursuant to options under the Plan may not exceed
5% of the Company’s outstanding shares.

5.   Awards.

          (a)     Non-Discretionary Grants. Each Non-Employee Director shall
receive, upon election or appointment as a member of the Board, an initial Award
to purchase 5,000 Common Shares. In addition, each Non-Employee Director serving
as a member of the Board immediately following each Annual Meeting of
Shareholders of the Company, beginning with the Annual and Special Meeting to be
held in 2002, shall automatically receive an Award to purchase 5,000 Common
Shares as of the first business day after such Meeting provided that, if a
Non-Employee Director has served for at least six but less than twelve months as
of the applicable Annual Meeting of Shareholders, his or her Award as of such
day shall be pro rated based upon the number of full months of service up to and
including that day. The terms of each Award shall provide that (i) the exercise
price shall be equal to 100% of the Fair Market Value (as hereinafter defined)
of the Common Shares on the date of grant, (ii) such Award shall not be
exercisable for a period more than 10 years following the date of grant, and
(iii) such Award shall vest and become exercisable on the first anniversary of
the date of grant. In the case of Awards exercisable in U.S. dollars, the “Fair
Market Value” of the Common Shares shall be the average of the high and the low
sales price of the Company’s Common Shares as reported as New York Stock
Exchange — Composite Transactions on the date of the grant, provided however, if
there is no trading in such shares on such Exchange on the date of grant, then
the average of the high and low sales prices for such shares on the next
preceding date on which there is trading shall be used for such calculation. In
the case of Awards exercisable in Canadian dollars, the “Fair Market Value” of
the Common Shares shall be the average of the high and low sales prices of the
Company’s Common Shares, as reported on The Toronto Stock Exchange on the date
of the grant, provided, however, if there is no trading in such shares on such
Exchange on the date of grant, then the average of the high and low sales prices
for such shares on the next preceding date on which there is trading shall be
used for such calculation. If an optionee ceases to be a Non-Employee Director,
such Award shall terminate except with respect to any portion of such Award then
exercisable, which portion shall remain exercisable for a period of (x) 90 days,
if the termination as a Non-Employee Director resulted from any reason other
than retirement, death or disability, or (y) one year, if the termination
resulted from retirement, death or disability; provided, that in the event the
termination resulted from a removal for cause, as determined by the Committee,
such Award shall immediately terminate and no longer be exercisable to any
extent; and provided further, that in no event shall any such Award remain
exercisable past the remainder of its scheduled term.

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          (b)     Method of Exercise. The exercise or purchase price of each
Common Share as to which an Award is exercised shall be paid in full at the time
of such exercise in cash. An Award may provide that the optionee may exercise
the Award by delivering to the Company an exercise notice and irrevocable
instructions for the Company to deliver directly to a broker named in the
exercise notice the number of Common Shares set forth in the notice in exchange
for payment of the exercise or purchase price of the Common Shares. Any exercise
of an Award following a Non-Employee Director’s death shall be made only by the
Non-Employee Director’s executor or administrator, unless the Non-Employee
Director’s will specifically disposes of such Award, in which case such exercise
shall be made only by such recipient’s spouse, minor children or grandchildren
or trust established in whole or in part for the benefit of such recipient
and/or one or more of such immediate family members as may be the recipients of
such disposition. If a Non-Employee Director’s personal representative or the
recipient of a specific disposition under the Non-Employee Director’s will shall
be entitled to exercise any Award pursuant to the preceding sentence, such
representative or recipient shall be bound by all the terms and conditions of
the Plan and the applicable Award Agreement which would have applied to the
Non-Employee Director.
          (c)     Delivery. Promptly after receiving payment of the exercise or
purchase price of each Common Share as to which an Award is exercised, the
Company shall deliver to the Non-Employee Director or to such other person as
may then have the right to exercise the Award or as directed by the Non-Employee
Director or such other person a certificate or certificates for the Common
Shares for which the Award has been exercised.
          (d)     Rights as Shareholder; Service as a Non-Employee Director. No
person shall have any of the rights of a shareholder in respect of Common Shares
subject to an Award until such Common Shares have been paid for in full and
issued to such person. Nothing contained in the Plan or in any instrument
executed pursuant hereto shall confer upon any Non-Executive Director any right
to continue in the service of the Company as a Director or interfere in any way
with the right of the Company to terminate the service of any Non-Executive
Director at any time, with or without cause.
          (e)     Surrender for Cash. A Non-Employee Director that has been
granted an Award shall have the right, at any time, but subject to the
discretion of the Board to suspend this right at any time upon the determination
of the Board that it is in the best interests of the Company to do so, in lieu
of the exercise of such Award, to elect to surrender to the Company for
cancellation any Award which is then exercisable for Common Shares in return for
the payment by the Company of an amount (the “Cancellation Amount”) equal to the
excess of the fair market value of the Common Shares subject to such surrendered
Award (such fair market value being determined to be (i) for Awards with a
purchase price in U.S. dollars, the simple average of the high and low prices at
which the Company’s Common Shares were traded in one or more board lots on the
New York Stock Exchange for the five days on which the Common Shares were traded
prior to the date on which the Awards were surrendered for cancellation, and for
Awards with a purchase price in Canadian dollars, the simple average of the high
and low prices at which the Common Shares were traded in one or more board lots
on the Toronto Stock Exchange for the five days on which the Common Shares were
so traded prior to the date on which the Awards were surrendered for
cancellation or (ii) with the prior consent of the Toronto Stock Exchange, such
other price as may be determined by the Board to be appropriate in the
circumstances) over the aggregate exercise price for the Common Shares of the
Company subject to such Award (as of

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the date of surrender). The Company shall have the right to withhold from any
payment in respect of the Cancellation Amount any applicable withholding taxes
or other withholding liabilities. Any Award surrendered for cancellation
pursuant to this subsection 5(e) shall be deemed to be terminated and of no
further force or effect as of the time of surrender or effective time of
surrender, if later, and the total number of Common Shares of the Company that
may be issued pursuant to the exercise of Awards under this Plan, as set forth
in section 4, shall be reduced by the number of Common Shares that were issuable
upon the exercise of such Award as of the time of surrender or effective time of
surrender, if later, unless payment of the Cancellation Amount is not made by
the Company in accordance with this subsection 5(e). Payment of the Cancellation
Amount shall be made by the Company within ten business days after the time of
surrender or effective time of surrender, if later, of an Award pursuant to this
subsection 5(e).

6.   Award Agreements.

          Each Award under the Plan shall be evidenced by an agreement (an
“Award Agreement”) setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in the Plan.

7.   Nontransferability; Forfeiture.

          No Award shall be assignable or transferable, and no right or interest
of any Non-Employee Director shall be subject to any lien, obligation or
liability of the Non-Employee Director, except by will or the laws of descent
and distribution. Notwithstanding the immediately preceding sentence, the
Committee may, subject to the requirements of applicable law or any stock
exchange and on the terms and conditions it may specify, permit a Non-Employee
Director to transfer any Awards granted to him or her pursuant to the Plan to
one or more of his or her spouse, minor children or grandchildren or to trusts
established in whole or in part for the benefit of the Non-Employee Director
and/or one or more of such immediate family members. During the lifetime of the
Non-Employee Director, Awards shall be exercisable only by the Non-Employee
Director or by the immediate family member or trust to whom such Awards have
been transferred in accordance with this Section 7.

8.   Adjustment of and Changes in Common Shares.

          In the event of any change in the outstanding Common Shares by reason
of any share subdivision, share consolidation, share dividend (other than a
share dividend in lieu of a cash dividend), recapitalization, merger,
consolidation, share reclassification, spinoff, combination or exchange of
shares or other corporate change, or any distributions to common shareholders
other than regular cash dividends (or share dividends in lieu thereof), the
Committee, subject to any required regulatory approvals, may make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number and kind of Common Shares or other securities issued or reserved for
issuance pursuant to the Plan and to outstanding Awards, the number of Common
Shares that may be subject to Awards and the exercise price per Common Share
subject to each Award, Except as expressly provided herein, no issuance by the
Company of shares of any class, or securities convertible into or exchangeable
for shares of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of Common Shares subject to any
Award. After any adjustment made pursuant to this Section 8, the number of
shares subject to each outstanding Award shall be rounded up to the nearest
whole number.

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9.   Change in Control.

          (a)     In the event of a Change in Control (as defined below), all
Awards shall become vested and exercisable in full. For purposes of the Plan,
“Change in Control” means the occurrence of any of the following events:
         (i)     Individuals who, as of the close of business on April 17, 2002,
constitute the Board (the “Incumbent Directors”) cease for any reason to
constitute at least a majority of the Board for at least one full year, provided
that any person becoming a Director subsequent to the close of business on
April 17, 2002, whose election or nomination for election was approved by a vote
of at least two-thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement and circular of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be an Incumbent Director; provided, however, that no
individual elected or nominated as a director of the Company initially as a
result of an actual or threatened election contest with respect to Directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;
         (ii)     Any “person” (as such term is defined in Section 3(a)(9) of
the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and as used in
Section 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company’s then outstanding securities eligible to
vote for the election of the Board (the “Company Voting Securities”); provided,
however, that the event described in this paragraph (ii) shall not be deemed to
be a Change in Control by virtue of any of the following acquisitions: (A) by
the Company or any subsidiary, (B) by any employee benefit plan sponsored or
maintained by the Company or any subsidiary, (C) by any underwriter temporarily
holding securities pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii) below), or (E) a
transaction (other than one described in paragraph (iii) below in which Company
Voting Securities are acquired from the Company, if a majority of the Incumbent
Directors approve a resolution providing expressly that the acquisition pursuant
to this clause (E) shall not constitute a Change in Control under this paragraph
(ii);
         (iii)     Shareholder approval of a merger, consolidation, share
exchange or similar form of corporate transaction involving the Company or any
of its subsidiaries, whether for such transaction or for the issuance of
securities in the transaction (a “Business Combination”), unless immediately
following such Business Combination: (A) more than 50% of the total voting power
of (x) the corporation resulting from such Business Combination (the “Surviving
Corporation”), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the “Parent
Corporation”), would be represented by Company Voting Securities that were
outstanding immediately prior to the consummation of such Business Combination
(or, if applicable, would be represented by shares into which such Company
Voting Securities were converted pursuant to such Business Combination), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such

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Company Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit plan
sponsored or maintained by the Surviving Corporation or the Parent Corporation)
would be or becomes the beneficial owner, directly or indirectly, of 25% or more
of the total voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation), and (C) at least a majority of the members of the board
of directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation) will have been Incumbent Directors at the time of the
Board’s approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of the
criteria specified in (A), (B) and (C) above shall be deemed to be a
“Non-Qualifying Transaction”); or
         (iv)     Shareholder approval of the plan of complete liquidation or
dissolution of the Company or a sale or other disposition of all or
substantially all of the Company’s assets.
          Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 25% of Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the number
of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.

10.   Governmental Compliance.

          Each Award under the Plan shall be subject to the requirement that if
at any time the Committee shall determine that the listing, registration or
qualification of any shares issuable or deliverable thereunder upon any stock
exchange or under any applicable law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition thereof,
or in connection therewith, no such Award may be exercised or shares issued or
delivered unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.

11.   Amendment and Termination.

          The Board may amend, suspend or terminate the Plan or any portion
thereof at any time, provided that (a) no amendment shall be made without
shareholder approval (including an amendment to increase the number of Common
Shares reserved for issuance under the Plan) if such approval is necessary in
order for the Plan to comply with any applicable law, regulations or stock
exchange rule, and (b) except as provided in Section 9, no amendment shall be
made that would adversely affect the rights of a Non-Employee Director under any
Award previously granted, without such Non-Employee Director’s prior written
consent.

12.   Governing Law.

          All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of Ontario without giving effect to
principles of conflict of laws.

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13.   Severability; Entire Agreement.

          If any of the provisions of this Plan or any Award Agreement is
finally held to be invalid, illegal or unenforceable (whether in whole or in
part), such provision shall be deemed modified to the extent, but only to the
extent, of such invalidity, illegality or unenforceability and the remaining
provisions shall not be affected thereby; provided, that if any of such
provisions is finally held to be invalid, illegal, or unenforceable because it
exceeds the maximum scope determined to be acceptable to permit such provision
to be enforceable, such provision shall be deemed to be modified to the minimum
extent necessary to modify such scope in order to make such provision
enforceable hereunder.

14.   No Third Party Beneficiaries.

          Except as expressly provided therein, neither the Plan nor any Award
Agreement shall confer on any person other than the Company and the grantee of
any Award any rights or remedies thereunder.

15.   Successors and Assigns.

          The terms of this Plan shall be binding upon and enure to the benefit
of the Company and its successors and assigns.

16.   Effective Date.

          The Plan shall be effective as of April 17, 2002 (“Effective Date”).
Subject to earlier termination pursuant to Section 11, the Plan shall have a
term of five years from its Effective Date. The Plan is conditioned upon the
approval of the shareholders of the Company and failure to receive such approval
shall render the Plan void and of no effect.