<PAGE>   1

                                                                EXHIBIT 10.20


                          ZEIGLER COAL HOLDING COMPANY
                      SPECIAL BONUS AND SEVERANCE PAY PLAN



                                   Section 1

                                General Purpose

     The Board of Directors of Zeigler Coal Holding Company ("Zeigler")
believes that it is in the best interests of Zeigler and its Subsidiaries to
provide additional security to certain employees of the Company (the "Covered
Employees") and thereby induce such individuals to continue in their employment
and enhance their ability to perform effectively and without undue distraction
should Zeigler become subject to a Change of Control (as hereinafter defined).
Accordingly, Zeigler hereby establishes the plan hereinafter set forth (the
"Plan") which provides for (i) the payment of a special Bonuses as provided in
Section 4 of this Plan in the event a Change of Control occurs prior to
December 31, 1998, (ii) the payment of  special severance benefits as provided
in Section 5 of this Plan in the event a Covered Employee's employment is
terminated within a twelve month period after a Change of Control, either by
the Company without Cause or by the Covered Employee for Good Reason, and (iii)
the vesting of all outstanding stock options held by those Covered Employees
employed on the effective date of a Change of Control.

                                   Section 2

                                  Definitions

     As used in this Plan, the following terms have the meaning set forth
below:

     2.1 "Base Salary" shall mean a Covered Employee's annual base salary in
effect immediately prior to the Change of Control.

     2.2 "Board of Directors" means the Board of Directors of Zeigler as from
time to time constituted.


<PAGE>   2


     2.3 "Cause" shall mean the (i) gross negligence of willful misconduct by
the Covered Employee in the performance of his or her duties which has a
material adverse effect on the Company's operations, properties, or business
relationships or (ii) Covered Employee's conviction of a felony or of
misappropriation of funds of the Company.

     2.4 "Change of Control" shall mean:

         (i)  the acquisition by any person or group of beneficial
              ownership, directly or indirectly, of securities of Zeigler
              representing more than eighty percent (80%) of the combined
              voting power of Zeigler's then outstanding securities; provided
              in any event that a reorganization or reincorporation shall not
              be considered a "Change of Control" as long as the persons
              holding the right to exercise actual control of Zeigler are
              substantially the same immediately after the reorganization or
              reincorporation as before the reorganization or reincorporation;
              or

         (ii) the sale or other disposition of substantially all of the
              assets of the Company (including shares of subsidiaries or
              affiliates).

     The terms "Beneficial ownership," "person" and "group" shall have the
meanings provided in or pursuant to Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended.

     2.5 "Company" shall mean Zeigler and its Subsidiaries.

     2.6 "Covered Employee" has the meaning stated in Section 3.

     2.7 "Disability" shall have the same meaning as set forth in the Company's
long-term disability plan in effect immediately prior to the Change of Control.

     2.8 "Effective Date" of this Plan is December 1, 1997.

     2.9 "Subsidiary" shall mean a corporation or other entity at least fifty
percent (50%) of whose stock or voting interests is owned, directly or
indirectly, by Zeigler immediately prior to a Change of Control (including each
corporation listed as a subsidiary  in the most recent


                                     - 2 -


<PAGE>   3

Report on Form 10-K filed by Zeigler with the Securities and Exchange
Commission which is then a subsidiary).  All such corporations shall be
referred to collectively as Subsidiaries.

     2.10 "Termination of Employment" shall mean the termination of a Covered
Employee's employment relationship with the Company for any reason other than

          (i)    death or "disability" of such Covered Employee,

          (ii)   termination for "Cause,"

          (iii)  voluntary termination by the Covered Employee other than
                 a "Termination for Good Reason," or

          (iv)   termination as part of the sale of the Company if the
                 Purchaser offers employment to the Covered Employee on the
                 same terms and conditions as in effect immediately prior
                 thereto.

     2.11 "Termination for Good Reason" shall mean the termination of
employment by a Covered Employee due to the occurrence of one or more of the
following events which takes effect during the twelve month period following
the date of the Change of Control, without the express written consent of the
Covered Employee:

          (i)    a reduction by the Company  in the Covered Employee's Base
                 Salary or in the formula under  any Bonus Plan applicable to
                 such Covered Employee as in effect prior to the Change of
                 Control (but not a reduction in bonus based on application of
                 such formula or any reduction in any bonus which is
                 discretionary as to amount);

          (ii)   a material reduction or other adverse change in the
                 responsibilities, duties or working conditions of the Covered
                 Employee, including any requirement that the Covered Employee
                 relocate his or her work location by more than 25 miles from
                 the location on the effective date of the Change of
                 Control; or

          (iii)  the failure of Zeigler to obtain the assumption of this Plan
                 by any successor as contemplated in Section 7.4.

     2.12 "Weekly Base Salary" shall mean the Covered Employee's Base Salary
divided by 52.



                                     - 3 -


<PAGE>   4


     2.13 "Years of Service" shall mean the Covered Employee's period of
employment with the Company (and all predecessor companies, including, without
limitation, Zeigler Coal Company, Old Ben Coal Company, and Shell Mining
Company ), computed in completed years and months.  For this purpose, the rules
for determining Years of Service under the Mining Companies Employees Pension
Plan shall be incorporated herein.

     2.14 "Zeigler" means Zeigler Coal Holding Company, a Delaware corporation
and its successors and assigns.


                                   Section 3

                        Categories of Covered Employees

     3.1 For purposes of this Plan, the term "Covered Employee" shall mean all
salaried employees of the Company.   Under no circumstance, however, shall
Covered Employees include any employee whose terms and conditions of employment
is governed by a collective bargaining agreement or whose compensation is
determined on an hourly basis.

     3.2 The Covered Employees shall be divided into one of the following
categories for purposes of determining the Benefits to which such Covered
Employee would be entitled under this Plan in the event a Change of Control
occurs:

         Category A.  Category A shall consist of those Covered Employees who
  are listed as senior executives on Schedule A to this Plan, with such
  additions or deletions from such Schedule A as shall be approved by the
  Board of Directors at any time prior to the effective date of a Change of
  Control;

         Category B. Category B shall consist of those Covered Employees who
  are listed as Key Executives on Schedule B to this Plan, with such
  additions or deletions from Schedule B as shall be approved by the Board
  of Directors at any time prior to the effective date of a Change of
  Control;



                                     - 4 -


<PAGE>   5


              Category C. Category C shall consist of those Covered Employees
     who are listed as executives and managers on Schedule C to this Plan, with
     such additions and deletions from Schedule C as shall be approved by the
     Board of Directors at any time prior to the effective date of a Change of
     Control; and

              Category D. Category D shall consist of all Covered Employees who
     are not included in Categories A, B or C.

                                   Section 4

                    Retention Bonus Payable to Covered Employees

         4.1  A Covered Employee shall be entitled to the Retention Bonus
determined in accordance with Section 4.2 hereof if:

              (i)  a Change of Control occurs on or before December 31, 1998;
                   and

              (ii) the Covered Employee is employed with the Company
                   (or successor thereto) as of the effective date
                   of the Change of Control.

         4.2  The Retention Bonus payable to the Covered Employee under the
circumstances set forth in Section 4.1 shall be determined as follows:

              (i)  For each Covered Employee in Category A, the Retention Bonus
                   shall equal two-thirds of the sum of  (1) his or her Base
                   Salary plus (2) his or her highest target bonus in effect for
                   such calendar year (whether or not such target bonus was
                   earned or likely to be earned) in which the Change of
                   Control occurs. For example, a Covered Employee with a
                   $200,000 Base Salary and a $120,000 target bonus would be
                   entitled to receive a Retention Bonus of $213,333.

              (ii) For each Covered Employee in Category B, the Retention Bonus
                   shall equal the one-third of the sum of (1) his or her Base
                   Salary plus (2) his or her highest target bonus in effect
                   for such calendar year (whether or not such target bonus was
                   earned or likely to be earned) in which the Change of
                   Control occurs.  For example, a Covered Employee with a
                   $150,000 Base Salary and a $50,000 target bonus would be
                   entitled to receive a Retention Bonus of $66,666.



                                     - 5 -


<PAGE>   6


              (iii) For each Covered Employee in Category C and D, the
                    Retention Bonus shall equal his or her Base Salary divided
                    by twelve (12); provided, the employee shall not be
                    entitled to any Retention Bonus unless he or she has been
                    employed by the Company for at least six months as of the
                    effective date of the  Change in Control.

        4.3   The Retention Bonus payable hereunder shall be paid no later than
the thirtieth (30th) day following the effective date of the Change of Control
to those Covered Employees entitled to such payment hereunder and shall be paid
in a lump sum, net of applicable withholding taxes.

        4.4   Upon the Change of Control, all outstanding stock options that
have been issued under the Zeigler stock option plan and are held by a Covered
Employee who is employed on effective date of the Change of Control shall
become fully vested.  The Covered Employee will be permitted to exercise the
stock options in accordance with the terms and conditions set forth in the
Stock Option Plan that pertains thereto.

                                   Section 5

                Severance Benefits Payable to Covered Employees


        5.1   In the event a Change of Control occurs on or prior to
December 31, 1998, a Covered Employee who is employed by the Company on the
date of the Change of Control shall be entitled to the severance benefits as
set forth in Section 5.2 hereof if the Covered Employee incurs a Termination of
Employment within the twelve month period following the Change of Control.
Notwithstanding the foregoing, the Covered Employee shall not be entitled to
severance benefits hereunder in the event such termination is a termination for
cause.

        5.2   A Covered Employee who has become entitled to severance benefits
pursuant to Section 5.1 shall receive the following benefits:

        (a)   Such Covered Employee Shall receive a cash payment in an amount
   determined as follows depending on the Category to which the Covered
   Employee is


                                     - 6 -


<PAGE>   7

      assigned on the effective date of the Change of Control, less the amount,
      if any, of the Retention Bonus paid to such Covered Employee pursuant
      hereto:

                 (i)   For each Covered Employee in Category A, the
                       severance payment shall equal two times the sum of (1)
                       his or her Base Salary plus (2) his or her highest
                       target bonus in effect for such calendar year (whether
                       or not such target bonus was earned or likely to be
                       earned).  For example, a Covered Employee with a
                       $200,000 Base Salary and a $120,000 target bonus would
                       be entitled to receive a severance payment of $640,000.

                 (ii)  For each Covered Employee in Category B, the severance
                       payment shall equal the sum of (1) his or her Base
                       Salary plus (2) his or her highest target bonus in
                       effect for such calendar year (whether or not such
                       target bonus was earned or likely to be earned). For
                       example, a Covered Employee with a $150,000 Base Salary
                       and a $50,000 target bonus would be entitled to receive
                       a severance payment of $200,000.

                 (iii) For each Covered Employee in Category C, the severance
                       payment shall equal an amount determined by multiplying
                       his or her Weekly Base Salary by the factor of three
                       (3) multiplied by  his or her Years of Service;
                       provided that, in no event shall such payment be more
                       than his or her Base Salary or less than his or her
                       Weekly Base Salary multiplied by twelve (12).

                 (iv)  For each Covered Employee in Category D, the severance
                       payment shall equal an amount determined by multiplying
                       his or her Weekly Base Salary by the factor of three
                       (3) multiplied by his of her Years of Service; provided
                       that, in no event shall such payment be more than his
                       or her Base Salary and, provided further, a Category
                       D Covered Employee shall not be entitled to any
                       severance payment unless he or she has been employed by
                       the Company for at least six months as of the effective
                       date of the Change in Control.

           (b)   Such Covered Employee shall continue to be covered under the
      Company's health and dental insurance plan and life insurance plan as in
      effect immediately prior to his or her Termination of Employment for a
      period of twelve months immediately following his or her Termination of
      Employment.  Such coverage shall be provided on the same terms and
      conditions applicable to active employees (as the same may be amended
      from time to time and subject to any legal limitations) in effect for
      such


                                     - 7 -


<PAGE>   8

      Covered Employee on the day before the Termination of Employment;
      provided, however, that such coverage shall be counted toward the period
      of continuation of coverage under the group health plan continuation
      coverage provision of ERISA and the Code; provided further, that such
      coverage shall end immediately upon the Covered Employee becoming
      eligible for coverage under any employer health plan as a result of
      subsequent employment.

            5.3 The Company shall pay the severance payment provided in this
Section 5 to the Covered Employee entitled thereto in cash no later than 30
days after the Termination of Employment.  Such payment shall be made in a lump
sum, net of applicable withholding taxes and any other severance payment as
provided in Section 7.2 of this Plan.

                                   Section 6

                             Duration and Amendment


            6.1 This Plan shall become effective on December 1, 1997 and shall
terminate on December 31, 1998 unless, prior thereto, a Change of Control shall
have occurred, in which case all rights granted hereunder shall be vested, and
the Plan shall continue in effect and shall apply to any termination of
employment that occurs within 12 months after the effective date of the Change
of Control.

            6.2 This Plan may be terminated or amended in any respect at any
time by resolution adopted by the Board of Directors provided that no such
termination or amendment shall adversely affect the rights hereunder of any
Covered Employee if a Change of Control occurs within ninety days following the
effective date of the adoption of such resolution and provided further that no
termination or amendment of the Plan shall become effective during the period
of twelve months following a Change of Control.  Subject to the provisions in
the preceding sentence, any termination or amendment of this Plan shall be
effective on the effective date of the resolution terminating or amending the
Plan (or any later date specified in such resolution) and may terminate,
reduce, restrict or condition the rights of any person hereunder.  In no event
shall the termination of a Covered Employee be construed as a termination or
amendment of the Plan.


                                     - 8 -


<PAGE>   9



                                   Section 7

                              General Provisions


     7.1    No employee whose employment is terminated prior to a Change of
Control and no Covered Employee whose employment is terminated more than twelve
months after a Change of Control shall be entitled to any severance benefits
under this Plan.  No provision of this Plan shall be interpreted or construed:

            (i)   to entitle any Covered Employee or other person to
                  employment by the Company or to any notice of
                  termination of employment by the Company,

            (ii)  to limit or restrict in any manner the right
                  of the Company to terminate any Covered
                  Employee's or other person's employment, or

            (iii) to change in any manner the conditions, terms,
                  responsibilities or duties of employment of any Covered
                  Employee or other person; provided that each Covered Employee
                  who is subject to a Terminantion of Employment within the
                  twelve-month period following a Change of Control shall be
                  entitled to receive the severance benefits as provided in
                  this  Plan.

     7.2    This Plan shall not limit in any respect the right of the Company to
enter into any contract or other arrangement for the making of severance or
other payments to any employee, whether or not relating to a Change of Control,
or for the making of any other payment in the event of a Change of Control.
The amount of severance payment which a Covered Employee is entitled to receive
hereunder shall be reduced by the amount of any other severance payments made
to such person under any contract or otherwise, which are made no later than 30
days following the Termination of Employment of such employee.

     7.3    All matters regarding this Plan and its application (including the
construction or interpretation of any provision hereof) shall be determined by
the Board of Directors or, following a Change of Control, by a majority of the
individuals (excluding any who are unable to act) who were directors of Zeigler
immediately preceding such Change of Control (whether or not any such
individuals remain a director at the time of such determination).  Any
such determination shall be binding upon and enforceable by Zeigler, all
Covered Employees and all other persons.


                                     - 9 -


<PAGE>   10

        7.4  This Plan shall be binding upon Zeigler and each Covered Employee
and their respective successors, assigns, heirs and representatives.  Zeigler
shall cause any person which acquires in any manner (including by merger)
substantially all of Zeigler's assets or which merges with Zeigler to assume
all provisions of this Plan with respect to all Covered Employees employed in
connection with the assets being acquired.  Such assumption shall be by written
instrument in form and substance satisfactory to a majority of the directors of
Zeigler in office immediately prior to such acquisition of assets.  Such
assumption shall not relieve Zeigler of its obligations under this Plan.

        7.5  The validity, interpretation, construction and performance of this
Plan shall be governed by the laws of the State of Illinois.

        7.6  For the purpose of this Plan, notices and all other communications
provided for in this Plan shall be in writing and shall be deemed to have been
duly given when delivered or mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed:

        (a)  if to an Employee, to his latest address as reflected on the
    company's employment records, with a copy to him at his place of
    employment, if known, and

        (b)  if to the Company or Zeigler, to:

             Corporate Secretary
             Zeigler Coal Holding
             50 Jerome Lane
             Fairview Heights, IL 62208



                                     - 10 -


<PAGE>   11



     WHEREFORE, Zeigler Coal Holding Company has caused this plan to be
executed as of this first day of December, 1997 by the members of the Special
Committee of the Board of Directors established in connection with the approval
of this Plan.

                                    ZEIGLER COAL HOLDING COMPANY

                                    By: /s/ John F. Manley
                                       ---------------------------------
                                            John F. Manley

                                    By: /s/ Michael K. Reilly
                                       ---------------------------------
                                            Michael K. Reilly

                                    Members of the Special Committee of the
                                    Board of Directors


                                     - 11 -