These comprise:

The expected disbursements out of the provisions recognized in the 2004 and 2005 balance sheets are as follows:

The provisions are partly offset by claims for refunds in the amount of EUR 116 million, which are recognized as receivables. These relate mainly to environmental measures and to claims out of the provisions for legal risks. The miscellaneous provisions contain provisions in the amount of EUR 663 million (2004: EUR 226 million) for significant legal risks. Further details of legal risks are given in Note [35].
 
Personnel commitments mainly include annual bonus payments, vacation entitlements, service awards and other personnel costs. Also reflected here are the obligations under the stock-based compensation programs.
 
29.1 Stock-based compensation
Stock-based compensation in the Bayer Group is granted primarily under standard programs and also on an individual-agreement basis.

Individual agreements enable the company to link remuneration components to the stock price or future stock price trends. Awards under such agreements may be contingent upon the attainment of agreed targets, or they may be based solely on length of service.

Standard programs exist for different groups of employees. The program offered to members of the Board of Management and other senior executives from 2000 through 2004 was essentially a stock option program with variable stock-based awards. This program provides for cash payments. Middle managers and other groups of employees were offered a stock incentive program or a stock participation program, respectively.

A new stock-based compensation program for top management, known as “Aspire,” was introduced in 2005. It comprises two variants which are described below. For other managers and non-managerial employees, a different type of stock participation program was offered in 2005, under which Bayer subsidizes employee purchases of shares in the company.

As with other remuneration systems involving cash settlement, awards to be made under the stock-based programs are covered by provisions in the amount of the fair value of the obligations currently existing toward the respective groups of employees. Changes in provisions relating to all existing stock-based compensation programs are, or have been, recognized in the income statement.

In the past, these programs were measured on the basis of intrinsic value. Starting in 2005, measurement is based on fair value, and prior periods have therefore been restated accordingly. The change affected provisions as follows:

The table below shows the change in provisions for the various programs:

Total expenses for stock-based compensation programs in 2005 were EUR 57 million (2004: EUR 8 million), including EUR 34 million for the new Aspire programs introduced in 2005 and EUR 2 million in subsidies for the 2005 short-term stock participation program (2004: EUR 4 million).

In 2005 provisions of EUR 4 million were recorded in the financial statements at the fair value of obligations entered into under individual stock-based compensation agreements. The obligations were measured in the same way as those incurred for the standard programs.

The fair value of obligations under the standard stock-based compensation programs and individual agreements has been calculated using the Monte Carlo simulation method using the following key parameters:

The expected exercise period is three to five years.

Long-term incentive program for members of the Board of Management and other senior executives (Aspire I)
To participate in Aspire I, members of the Board of Management and other senior executives are required to purchase a certain number of Bayer shares that is predetermined according to specific guidelines and to retain them for the full term of the program.

A percentage of their annual base salary is defined as a target for variable payments (“Aspire target opportunity”). Depending on the performance of Bayer stock, both in absolute terms and relative to the EURO STOXX 50^SM benchmark index, participants are granted an award of between 0 and 200 percent of their individual target opportunity.

Participants may ask for their Aspire award to be paid out in cash immediately at the end of the three-year performance period, or they may convert it into “performance units”. These can then be redeemed within a two-year exercise period for a cash payment that depends on the Bayer stock price on the exercise date.
 
Long-term incentive program for middle management (Aspire II)
A variant of the Aspire program with the following modifications is also offered to middle management:

• No personal investment in Bayer shares is required.
• The amount of the award in relation to the employee’s personal Aspire target opportunity is based entirely on the absolute performance of Bayer stock during the performance period.
• The award varies between 0 and 150 percent of the Aspire target opportunity.

This variant of the Aspire program is thus not linked to the EURO STOXX 50^SM index.
 
Stock Participation Program (2005) for other managers and non-managerial employees
Under this program, Bayer offered employees the opportunity to purchase shares at a discount as follows:

• up to 30 Bayer shares at a discount of EUR 6.75 per share
• additional Bayer shares at a 15 percent discount up to a maximum total value of EUR 2,500

Managers not eligible to participate in the Aspire program could purchase shares at a 15 percent discount up to a maximum value of EUR 4,000.

The shares purchased under the 2005 program must be held in a special deposit account and may not be sold before December 31, 2006. Employees acquired a total of 523,072 Bayer shares under the 2005 Stock Participation Program.
 
Stock-based compensation programs 2000–2004
The stock-based compensation programs offered to the different employee groups in 2000 through 2004 were all similar in structure. Provisions for the obligations under these programs are recorded in the balance sheet at fair value and recognized in the income statement. Entitlement to awards under these programs depends on an initial investment in Bayer stock being retained for their duration.

The table shows the programs applicable through December 31, 2004:

Stock Option Program (2000–2004)
A maximum personal investment in Bayer stock was defined for each Board of Management member or other senior executive who wished to participate in the Stock Option Program.

Here, too, there is a three-year retention period followed by a two-year exercise period, after which any option rights not exercised expire. Eligibility to exercise option rights and the award to which the holder is entitled depend on the absolute and relative performances of Bayer AG stock.

For the tranches issued in 2000–2002, every participant received one option for every 20 shares placed in a special account (personal investment). Each option originally could reach a maximum value of 200 shares during the term of the tranche, depending on the performance of Bayer stock, both in absolute terms and relative to the benchmark index, the EURO STOXX 50^SM.

For the tranches issued in 2003 and 2004, participants received up to three options per share of their personal investments. For each option, a cash payment – equivalent to the market price of one Bayer share – and an outperformance premium are awarded at the exercise date subject to the attainment of certain performance and outperformance targets, respectively.

The stock options issued under the 2001 and 2002 tranches can currently be exercised. However, on the reporting date their intrinsic value was zero.

Stock Incentive Program (2000–2004)
To take part in this program, each participant was required to deposit shares with a maximum aggregate value of half his or her performance-related bonus for the preceding fiscal year. The incentive award depends on the number of Bayer shares deposited at the launch of each tranche and the overall performance of Bayer stock. The Stock Incentive Program differs from the Stock Option Program in that participants may sell their shares during the term of the program, although any shares sold do not count for the purpose of incentive awards on subsequent distribution dates. The Stock Incentive Program runs for a ten-year period, during which there are three incentive payment dates.

Incentive payments under the program are only made if Bayer stock has outperformed the Dow Jones EURO STOXX 50^SM index by the respective distribution dates. For every ten Bayer shares originally placed in their deposit account and retained until the distribution date, participants then receive payments equal to the values of two shares after two years, four shares after six years and four shares after ten years.

Stock Participation Program (2000–2004)
Under the Stock Participation Program, only half as many shares are allocated per ten shares deposited as under the Stock Incentive Program, but allocation does not depend on any performance criteria.

29.2 Environmental protection
The Group’s activities are subject to extensive laws and regulations in the jurisdictions in which it does business and maintains properties. Compliance with environmental laws and regulations may require Bayer to remove or mitigate the effects of the disposal or release of chemical substances at various sites. Under some of these laws and regulations, a current or previous owner or operator of property may be held liable for the costs of removal or remediation of hazardous substances on, under, or in its property, without regard to whether the owner or operator knew of, or caused the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. As many of the production sites have an extended history of industrial use, it is impossible to predict precisely what effect these laws and regulations will have on the Group in the future.
 
As is typical for companies involved in the chemical and related industries, soil and groundwater contamination has occurred in the past at some of the sites, and might occur or be discovered at other sites. Group companies are subject to claims brought by United States Federal or State regulatory agencies and other private entities and individuals regarding the remediation of sites that they own, formerly owned or operated, where materials were produced specifically for them by contract manufacturers or where waste from their operations was treated, stored or disposed of.
 
In particular, a potential liability exists under the U.S. Federal Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as “Superfund,” the U.S. Resource Conservation and Recovery Act and related state laws for investigation and remediation costs at a number of sites. At most of these sites, numerous companies, including Bayer, have been notified that the U.S. Environmental Protection Agency, state governing body or private individuals consider such companies to be potentially responsible parties under Superfund or related laws. At other sites, Bayer is the sole responsible party. The proceedings relating to these sites are in various stages. In most cases remediation measures have already been initiated.
 
Provisions for environmental remediation as of December 31, 2005 amounted to EUR 279 million (2004: EUR 249 million). The material components of the provisions for environmental remediation costs primarily relate to land reclamation, rehabilitation of contaminated sites, recultivation of landfills, and redevelopment and water protection measures. The provisions for environmental remediation costs are recorded on a discounted basis where environmental assessments or clean-ups are probable, the costs can be reasonably estimated and no future economic benefit is expected to arise from these measures. The above amount of provisions represents anticipated future remediation payments totaling EUR 363 million (2004: EUR 294 million), discounted at risk-free average rates of between 3.0 percent and 7.0 percent. These discounted amounts will be paid out over the period of remediation of the relevant sites, which is expected to be 20 years.
 
Further information on the inherent difficulties involved in accurately estimating environmental obligations is provided in Note [5].
 
29.3 Restructuring charges
Restructuring charges of EUR 162 million were incurred in 2005 for closures of facilities and relocation of business activities, including EUR 67 million in provisions that are expected to be utilized as the respective restructuring measures are implemented. The total charges include EUR 50 million in severance payments, a total EUR 59 million in accelerated amortization/depreciation and write-downs of intangible assets, property, plant and equipment, and EUR 53 million in other expenses. Most of the charges taken for severance payments and other expenses in 2005 will lead to disbursements in 2006.
 
Provisions for restructuring still contained EUR 9 million from the previous year’s allocation for restructuring projects in the Pharmaceuticals Division, some of which relate to the strategic alliance with Schering-Plough. This amount is mainly for severance payments and for obligations under supply and service arrangements. Further, as a result of more recent assessments of the market position of certain marketing licenses in the United States, the useful life of the corresponding intangible assets has been reduced and inventories have been written down, leading to additional expenses of EUR 18 million.
 
In connection with the restructuring of the pharmaceuticals site in Wuppertal, Germany, a former Lipobay facility was written down by EUR 5 million in 2005. Further costs of EUR 5 million were incurred in addition. In 2004, expenses of EUR 24 million were incurred for severance payments in connection with the restructuring of the research center in Wuppertal, Germany.
 
The building use plan for the West Haven, Connecticut, site in the United States was reviewed in the third quarter of 2005, and it was determined that Bayer has no further use for two of the buildings because of site consolidation. An impairment test was carried out on these buildings by comparing their residual carrying amounts to their fair value less costs to sell, resulting in a write-down of EUR 12 million.
 
At the end of the third quarter of 2005 it was decided to relocate the headquarters of the Diabetes Care Division in the United States from Elkhart, Indiana, to Tarrytown, New York. This relocation, which is scheduled for completion by the end of 2006, affects about 160 employees. In this connection, a write-down of EUR 12 million was taken for the buildings in Elkhart used by this division, as no other use can be found for them. Provisions of EUR 7 million were recorded for severance payments to employees.
 
As a result of the reorganization of the Diabetes Care and Molecular Testing Systems activities at the Berkeley, California, and Walpole, Massachusetts, sites in the United States, additional expenses of EUR 3 million were incurred for severance payments (2004: EUR 7 million).
 
Following the decision made in the second quarter of 2005 to further reorganize the Bayer CropScience business in France, provisions of EUR 23 million were established for restructuring charges, consisting largely of personnel expenses for social plans. The reorganization affects virtually all functions at the relevant companies and includes the relocation of accounting activities. The restructuring provisions as of December 31, 2005 totaled EUR 33 million.
 
As part of the site consolidation at Bayer CropScience in the United States, the Environmental Science and Seed Treatment activities at the Montvale, New Jersey, and Birmingham, Alabama, sites are being transferred to Research Triangle Park, North Carolina, where the U.S. subsidiary of Bayer CropScience is headquartered. A provision of EUR 12 million was recorded for this relocation. Of this amount, EUR 7 million is for personnel expenses and most of the remainder for infrastructure measures.
 
An additional EUR 4 million provision was recorded for personnel and infrastructure measures and the transfer of administrative functions as a result of closing a CropScience site in Hauxton, United Kingdom, and the relocation of manufacturing operations to other sites. Expenses of EUR 13 million were recognized in this connection in 2004.
 
Following the decision to shut down the U.S. production site for TDI in New Martinsville, West Virginia, a EUR 9 million write-down was recognized on assets that can no longer be utilized. The continuing reorganization of the MaterialScience business, which began in 2002, led to additional expense of EUR 4 million for severance payments. The other expenses include EUR 33 million relating to a contractual purchase obligation. Current overcapacity has made it unlikely that the agreement concerned will be utilized.
 
Further ongoing restructuring programs to improve the profitability of the subgroups and integrate acquisitions gave rise to total expenses of EUR 15 million, comprising EUR 3 million in severance payments, EUR 1 million in write-downs and EUR 11 million in other charges.
 
Changes in provisions for restructuring were as follows:

The other costs are mainly demolition expenses and other charges related to the abandonment of production facilities.