<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C.  20549

                                   FORM 10-K

            [ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

           [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         Commission file number 1-13298

                          ZEIGLER COAL HOLDING COMPANY
             (Exact name of registrant as specified in its Charter)


     DELAWARE                                        36-3344449
(State of incorporation)                (I.R.S. Employer Identification No.)

<TABLE>
<CAPTION>
<S>                                            <C>                   <C>
           50 JEROME LANE                          62208                       (618) 394-2400
       FAIRVIEW HEIGHTS, ILLINOIS                (Zip Code)            (Registrant's telephone number,
(Address of principal executive offices)                                     including area code)
</TABLE>


          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


      Title of class                  Name of each exchange on which registered
Common Stock, $.01 par value                    New York Stock Exchange


          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      None

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.     [ X ] Yes  [   ] No

     Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.     [ X ]

     On March 13, 1998, the aggregate market value of the shares of voting
stock of the Registrant held by non-affiliates was approximately $296 million.

     As of March 13, 1998, 28,199,711 shares of the Registrant's common stock
were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the 1998 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Report.



<PAGE>   2







                          ZEIGLER COAL HOLDING COMPANY
                                   FORM 10-K
                                 ANNUAL REPORT
                               TABLE OF CONTENTS





       ITEM                                                          PAGE
       ----                                                          ----

                                     PART I
        1    Business .............................................    1
        2    Properties ...........................................   15
        3    Legal proceedings ....................................   15
        4    Submission of matters to a vote of security holders ..   15


                                    PART II


        5    Market for registrant's common stock and related
              shareholder matters .................................   18
        6    Selected financial data ..............................   19
        7    Management's discussion and analysis of financial
              condition and results of operations .................   21
        8    Financial statements and supplementary data ..........   27
        9    Changes in and disagreements with accountants on
              accounting and financial disclosure .................   51


                                    PART III


       10   Directors and executive officers of the registrant ....   52
       11   Executive compensation ................................   52
       12   Security ownership of certain beneficial owners and
             management ...........................................   52
       13   Certain relationships and related transactions ........   52


                                    PART IV

       14   Exhibits, financial statement schedules and reports
             on Form 8-K ..........................................   53


       Signatures..................................................   59



                                       i

<PAGE>   3




                                    PART  I

                               ITEM 1.  BUSINESS

     Zeigler Coal Holding Company ("Zeigler" or the "Company"), through its
subsidiaries, is one of the largest coal producers in the United States.  The
Company currently operates, through its subsidiaries, seven active underground
and surface coal mining complexes located in five states, two east coast
transloading terminals, a power marketing business, and other energy-related
businesses.

     Coal operations accounted for 75% of the Company's total revenues and 125%
of operating earnings in 1997.  The Company produces primarily steam coal, with
sales to electric utilities accounting for approximately 90% of its 1997
revenues from coal sales.  In 1997, approximately 89% of the Company's revenues
from coal sales resulted from long-term supply contracts, most of which call
for prices that exceed the price at which such coal could be sold in the spot
market.  At December 31, 1997, the Company owned or held through leases
approximately 1.2 billion tons of economically recoverable coal reserves,
including .9 billion tons of low-sulfur and compliance coal.

HISTORY

     In January 1985, the Company purchased Zeigler Coal Company from Houston
Natural Gas Corporation.  At that time, Zeigler Coal Company's mines and
principal reserves were located in southern and central Illinois.  In July
1990, the Company acquired all of the common stock of Old Ben Coal Company from
BP America Inc.  At the time of the acquisition, Old Ben Coal Company had mines
and reserves in Illinois, Indiana and West Virginia.  In November 1992, Zeigler
Coal Company was merged into Old Ben Coal Company.  Also in November 1992, the
Company acquired all of the stock of Shell Mining Company.  At the time of the
acquisition, Shell Mining Company controlled mines and reserves in 10 states,
two transloading terminals located on the east coast, Encoal Corporation, and
other coal-related assets.

     In 1996, the Company established EnerZ Corporation, the Company's energy
trading and marketing subsidiary, which received approval from the Federal
Energy Regulatory Commission ("FERC") in the fourth quarter of 1996 for status
as a wholesale power marketer, and initiated trading activities in the first
quarter of 1997.  Another subsidiary, Zenergy, Inc., owns a 30% interest in
Louisiana Generating LLC, which has made an offer to purchase out of bankruptcy
the non-nuclear assets of Cajun Electric Power Cooperative, Inc. of Baton
Rouge, Louisiana.

     On December 3, 1997, the Company announced that it was retaining an
investment banking firm to explore various strategic alternatives to maximize
value for shareholders, including the possible sale of the entire Company.  In
connection therewith, the Board of Directors adopted a change-in-control
severance plan and retention bonus plan for all salaried employees as well as
special incentives for certain key employees.  The Company has since retained
the investment banking firm Credit Suisse First Boston and prepared materials
for interested parties.




                                      1
<PAGE>   4



COAL OPERATIONS

     The Company views each of its mining complexes as a separate resource, with
distinct coal qualities, reserve lives, transportation alternatives, and
production and cost characteristics.  While spot market sales may justify
continued operations of a particular mine, the Company generally seeks long-term
coal supply contracts for each mine's output.  Due to the Clean Air Act
Amendments of 1990 (Clean Air Act), the Company expects to expand the sale of
its low-sulfur coal resources and to focus its higher-sulfur coal sales effort
on those utilities which have installed scrubbers or have other capabilities to
meet their compliance objectives with such coal.  The Company intends to develop
its reserves and open mines as satisfactory long-term commitments for the coal
are obtained.

     The Company's active coal operations include the following:

     Bluegrass Coal Development Company - Bluegrass includes Evergreen Mining
Company in West Virginia, Pike County Coal Corporation in Kentucky, R. & F.
Coal Company in Ohio, and Turris Coal Company in Illinois.

     Mountaineer Coal Development Company - Mountaineer consists of Marrowbone
Development Company in West Virginia.

     Old Ben Coal Company - Old Ben consists of Old Ben Mine #11 in Illinois.

     Triton Coal Company - Triton includes the Buckskin Mine and the North
Rochelle Mine (under development) in Wyoming.

     Sales and Marketing

     Franklin Coal Sales Company ("Franklin") provides sales and marketing
support to all Zeigler companies.  Sales activities are organized for the
different coal groups, with a sales team responsible for all accounts within
each group.  The sales teams are responsible for submitting bids,
negotiating sales terms and conditions, and for providing other services as
customers require. Franklin provides a limited range of services to other
Zeigler companies, including coal purchasing for blending and market research.
Franklin forecasts future demand for various coal types and works with
employees of the operating companies to determine the optimal production of
coal.  Franklin also assists in the negotiation and maintenance of coal sales
contracts, helps customers in securing transportation agreements, and monitors
compliance with contract terms and delivery schedules.

     Competition and Pricing

     Zeigler competes with other large producers and hundreds of small
producers in the U.S. and abroad.  The principal customers for Zeigler coal
production are electric utilities, with coal qualities, price, location,
transportation costs, and reliability being the most important factors upon
which the Company competes with other coal producers.  Most of Zeigler's
production is sold under long-term coal supply contracts which are the result
of competitive bidding and extensive negotiations.

     The markets in which Zeigler sells its coal are affected by numerous
factors beyond Zeigler's control. Continued demand for Zeigler's coal and the
prices that Zeigler will be able to obtain will depend primarily on coal
consumption patterns of the domestic electric utility industry which in turn
are affected by the demand for electricity, environmental and other
governmental regulations and orders, technological developments, and the
availability and price of competing coal and alternative fuel supply sources
such as natural gas or oil.




                                      2
<PAGE>   5


     Transportation is an important factor in coal marketing because a
significant portion of a customer's delivered cost of coal is attributable to
transportation.  Generally, transportation costs from the mine to the place of
use (e.g., the customer's power plant) are incurred directly by the customer.
The availability and cost of transportation affects the marketability of coal.

     In 1997, approximately 82% of Zeigler's sales tonnage left the mine site
by rail with the balance by truck.  Transportation by inland waterway barges,
at a lower cost than by railroad, is available to many of Zeigler's mines in
the Midwest and West Virginia, and approximately 24% of the Company's coal
shipments are moved by barge at some point during shipping.  Most of the
Company's mines are served by a single railroad, although some mines are served
by multiple railroads.  The Staggers Rail Act of 1980 limited the Interstate
Commerce Commission's regulation of the railroad industry and increased the
freedom of railroads to set their own rates and enter into transportation
contracts.  The practices of and rates set by the railroad servicing a mine may
affect, either adversely or favorably, Zeigler's marketing efforts with respect
to coal produced from that mine.

     North Rochelle Development

     The Company announced in February 1996 the full-scale development of
Triton Coal Company's North Rochelle mine in the southern Powder River Basin.
Since that time, Triton has been primarily engaged in moving dragline
overburden removal equipment to the site, production of diligence tonnage,
permitting, and engineering and construction work.  At this time, Triton
estimates full production at North Rochelle to begin in the first quarter of
1999.  The estimated total cost to develop North Rochelle is approximately
$100.0 million.

     Long-term Coal Supply Contracts

     Zeigler's subsidiaries have entered into various long-term coal supply
contracts with its electric utility customers.  Customers enter into long-term
contracts for coal principally to secure a reliable source of supply at a
predictable price.  Zeigler enters into such contracts to provide the stable
sources of revenues required to support the large expenditures needed to open,
expand or maintain a mine to service the contract.  The Company's major
long-term contracts have remaining terms ranging from one to 18 years.  The
loss of certain long-term contracts could have a material adverse effect on
Zeigler's operations and business.  The following table sets forth information
regarding the Company's long-term coal supply contracts which, at December 31,
1997, had remaining terms of one or more years.


                                      3

<PAGE>   6







<TABLE>
<CAPTION>                                                                                             Actual
                                                                            Expiration                 1997
                                                                              Date of                 Tonnage
                                                                           Contract (1)            (In millions)
                                                                         ----------------          -------------
<S>                                                                          <C>                       <C>
Western Fuels Association, Inc. - Cajun Electric Power
  Cooperative, Inc. .................................................           2016 (2)                 5.8
Western Fuels Association, Inc. - Basin Electric Power Cooperative ..           2000                     3.2
Carolina Power & Light Company - Marrowbone .........................           2006                     2.7
West Texas Utilities - Buckskin .....................................           1999                     2.7
Georgia Power Company - Marrowbone ..................................           2008                     1.5
Carolina Power & Light Company - Wolf Creek .........................           2004                     1.5
Columbus Southern Power Company .....................................           1999                     1.3
Springfield City Water, Light & Power ...............................           2011                     1.2
Tampa Electric Company ..............................................           2004                     1.0
Georgia Power Company - Pike County .................................           2010                     1.0
Muscatine Power & Water .............................................           2002                     0.6
Duke Power Company ..................................................           2003                     0.5
South Carolina Public Service Authority .............................           2000                     0.5
Northern Indiana Public Service .....................................           1998                     0.5
Ohio Edison Company - Evergreen/Marrowbone ..........................           2000                     0.4
Cardinal Operating Co. - Evergreen ..................................           2006                     0.4
Lodestar Energy - Pike County .......................................           2001                     0.4
Carolina Power & Light Company - Pike County ........................           2004                     0.4
AE Staley ...........................................................           1998                     0.3
Electric Fuels Corporation ..........................................           2002                     0.2
ADM - CCP ...........................................................           1998                     0.2
Anker Energy - Evergreen ............................................           1999                     0.1
Western Farmers Electric Cooperative ................................           2011 (3)                   -
Oklahoma Gas and Electric Company ...................................           2011 (4)                   -
Carolina Power & Light Company - Marrowbone..........................           2006 (5)                   -
</TABLE>


(1)  Reflects stated term of contract and does not assume the exercise by the
     Company of unilateral options to extend.  The  contract reopeners and
     other provisions of certain contracts may make the specified term of a
     long-term contract less meaningful.

(2)  Earliest estimated expiration date.  Actual date will vary with life of
     the units used by the customer.  See Item 8., "Financial Statements and
     Supplementary Data," Note 16, below.

(3)  The contract contains a 15 year first-right-of-refusal extension
     provision in favor of Triton.  In an effort to assist its customer in
     meeting its Phase II (Clean Air Act) requirements, Zeigler converted the
     extension provision into a firm contract for North Rochelle coal,
     contingent on opening the North Rochelle mine.  The contract provides the
     flexibility for deliveries from Buckskin, under certain circumstances, if
     North Rochelle is not yet in commercial production by 1999.  The Company
     estimates that full production at North Rochelle will begin in the first
     quarter of 1999.

(4)  Shipments will commence upon the opening of the North Rochelle mine for
     1.0 million tons per year for the first year (1999) and 4.0 million tons
     per year thereafter until 2011.


(5)  Shipments will commence in 1998 for a total of 6.1 million tons over the
     contract period.

     The terms of long-term coal supply contracts are the result of both
bidding procedures and extensive negotiations with the customer.  As a result,
the terms of such contracts vary significantly in many respects, including
price adjustment features, price reopener terms, coal qualities, quantity,
flexibility and adjustments, Zeigler's ability to provide coal from various
sources, environmental restraints, force majeure provisions, termination
provisions, extension options and assignability.


                                      4

<PAGE>   7


     A majority of Zeigler's long-term coal supply contracts contain price
reopener provisions under which the contract price can be periodically adjusted
upward or downward based on changes in the market price of coal since the
contract was executed or the last application of a price reopener provision.
The price reopener provision may specify an index or other market pricing
mechanism on which a new contract price is to be based.  Frequently, bid
solicitations are sent by the customer to other suppliers to use in
establishing a new price or for the purpose of establishing a
first-right-of-refusal.  In some cases, the parties may seek an arbitration or
other dispute resolution mechanism if the parties do not agree.  In other
cases, the contract may provide for termination if the parties do not agree.
Some price reopener provisions contain limitations on the amount of price
change that can result from application of the provision.

     Contract prices under long-term coal supply agreements frequently vary
from the price at which a customer is able to acquire and take delivery of coal
of similar quality in the spot market.  The delivered cost to the customer in
the spot market will depend on the quality of the available coal, the
competitive climate in the market from which deliveries can economically be
made, the availability and cost of transportation to the customer's facility
and other factors.  All such factors vary from time to time.

     Some of these contracts contain hardship or gross inequities clauses.
From time to time, customers have asserted the right to use these clauses as
price reopener clauses in an attempt to reduce the prices under long-term
contracts.  The Company has rejected these assertions, but there can be no
assurance that customers will not assert such clauses in the future in an
attempt to obtain favorable price concessions.  In most cases, market
conditions do not constitute gross inequities or hardship.

     Zeigler's long-term coal supply contracts specify qualities for the coal
to be delivered relating to the coal's BTU, sulfur and moisture content,
grindability, and other factors. Generally, coal quality specifications are
based on the reserves from which the coal is intended to be mined, and the
contract may specify the reserves from which the coal is to be mined.

     Zeigler's long-term coal supply contracts contain force majeure provisions
allowing suspension of performance by Zeigler or the customer to the extent
necessary during the duration of certain events beyond the control of the
affected party, including labor disputes, natural disasters, casualties,
government impositions, transportation disruptions, and similar events.
Certain contracts may terminate upon continuation of an event of force majeure
for an extended period of time (generally six months or more).  Deficiencies in
deliveries of coal which are caused by force majeure may or may not be made up,
depending upon the specific language of the contract or needs of the parties.

     From time to time during the term of the various long-term contracts,
Zeigler is involved in disputes relating to, among other things, coal quality,
pricing and quantity.  While customer disputes, if unresolved, could result in
termination or cancellation of the contract involved, Zeigler's experience has
been that curative and/or dispute resolution measures decrease the likelihood
of termination or cancellation.  In addition, Zeigler's development of
long-term business relationships with many of its customers has generally
permitted it to resolve business disputes in a mutually acceptable manner.
Nonetheless, Zeigler has from time to time been involved in arbitration and
other legal proceedings regarding its long-term contracts and there can be no
assurance that existing and future disputes can be resolved in a mutually
satisfactory manner.  The Company believes that in recent years the potential
deregulation of electric utilities and reduced spot market prices for coal have
caused some customers to become more aggressive in seeking to reduce, modify,
or terminate their obligations under their long-term contracts.


                                      5

<PAGE>   8


     The operating profit margins realized by Zeigler under its long-term coal
supply contracts depend on a variety of factors, vary from contract to
contract, and will fluctuate during the contract term, depending on contract
provisions, Zeigler's production cost, and other factors.  Termination or
suspension of deliveries under a high-priced contract could have an adverse
effect on earnings and operating cash flow disproportionate to the percentage
of production represented by the tonnage delivered under such contract.

     From time to time the Company discusses possible modifications to
long-term contracts with its customers, with a view toward responding to
concerns (including price and quality issues) raised by its customers while
preserving or enhancing the value of the contract to the Company.  In 1996, the
Company worked closely with several significant customers to reduce contract
risk, increase contract tonnage, and give Zeigler the flexibility to better
operate its mines in a cost effective manner as well as help customers meet
their own needs.  Elements of a contract that can be renegotiated include
sourcing and geographic flexibility, quality flexibility, increased volume, and
multi-tier pricing.   The Carolina Power & Light Company ("CP&L") contracts
described below were renegotiated in 1996 to accomplish one or more of those
elements.

     The following discussion contains a brief description of long-term
contracts relating to customers that accounted for more than 10% of Zeigler's
consolidated 1997 revenues from coal sales.  Each of these contracts calls for
coal prices that exceed the current spot price for coal sold in their
respective markets.  The six contracts, four long-term contracts with CP&L and
two long-term contracts with Georgia Power Company, collectively accounted for
approximately 45% of revenues from coal sales and more than 83% of the
Company's operating income in 1997.

     Carolina Power & Light Company - CP&L has four long-term contracts to
     purchase coal from subsidiaries of the Company during 1998.  One contract
     provides for 2.8 million tons annually from the Marrowbone mining complex
     through 2006. The second contract, also from Marrowbone, provides for a
     total of 6.1 million tons over the contract period which commences in 1998
     and expires 2006.  Both contracts have fixed price increases each year. The
     third agreement, which expires in December 2004, provides for the
     purchase of 1.5 million tons of coal annually with fixed quarterly tonnage
     increases. Currently, coal required to fulfill this contract is being
     purchased from outside suppliers.  A fourth contract calls for 0.5 million
     tons annually from Pike County or other CSX sources expiring in 2004.
     This contract price is adjusted by a published index.  During 1997 and
     1996, sales to CP&L under these contracts accounted for approximately 29%
     and 18%, respectively, of Zeigler's consolidated revenues from coal sales.

     Georgia Power Company - Georgia Power Company has two long-term contracts
     with subsidiaries of the Company.  One contract requires the purchase of
     1.5 million tons annually from Marrowbone.  This agreement expires in
     December 2008 with an option to extend for five years with the mutual
     consent of both parties.  The price adjusts to reflect changes in industry
     labor costs, quarterly changes in indices, and any changes in governmental
     impositions resulting from new or amended laws, rules and regulations
     levied upon the production, preparation or sale of coal.  The contract has
     a partial price reopener in July 1999 and every five years thereafter.
     Georgia Power also has a long-term contract, which expires in December
     2010, to purchase 1.0 million tons annually from Pike County.  The price
     adjusts to reflect changes in industry labor costs and quarterly indices
     and may be reopened every five years.  The next reopener will be January
     2001.  During 1997 and 1996, sales to Georgia Power under these contracts
     and short-term arrangements accounted for approximately 16% and 14%,
     respectively, of Zeigler's consolidated revenues from coal sales.


                                      6

<PAGE>   9




     Coal Reserves and Other Properties

     The Company controls coal reserves in 10 states which contain substantial
amounts of coal of varying qualities.  Reserve estimates are prepared by the
Company's engineers and geologists and reviewed periodically to reflect data
received and developments affecting the reserves. Accordingly, reserve
estimates will change from time to time reflecting mining activities, analysis
of new engineering and geological data, changes in reserve holdings,
modification of mining plans, or mining methods and other factors.

     The following table summarizes the Company's coal reserves as of December
31, 1997. Information in the table, including the classification of reserves as
"Economic," is based on estimates by Company personnel.  As used in the table,
the following terms are defined as follows: "Assigned reserves" refers to
reserves legally recoverable generally through existing facilities using
current mining technology; "Economic" means that the reserve is recoverable
using current mining technology at costs estimated to be similar to those
incurred by currently operating mines producing similar quality coal;
"Unassigned reserves" refers to reserves legally recoverable using current
mining technology but which would require substantial capital investment for
facilities to enable recovery of the coal.  In addition to the reserves
reflected in the table, the Company owns or holds through leases approximately
870.3 million tons of coal deposits which are minable using current mining
technology but the costs of mining such coal may cause recovery to not be
commercially viable under current economic conditions or require further
investigation and evaluation to determine whether recovery is commercially
viable.


<TABLE>
<CAPTION>
                                       Underground         Reserves     Measured     Indicated
                                         (UG) or           (tons in     (tons in      (tons in      Sulfur
           Mine                         Surface (S)       millions)   millions) (1)  millions) (2)  (%) (3)  Btu/lb.
-----------------------------           ----------        ---------  -------------  -------------  -------  -------
<S>                                     <C>                <C>            <C>             <C>       <C>    <C>
  ASSIGNED ECONOMIC RESERVES:
Mountaineer Coal Development Co.
    Marrowbone(4)                          UG&S               25.4           23.6            1.8      0.7   12,100
    Wolf Creek                              UG                11.7            9.7            2.0      1.7   13,275

Old Ben Coal Company
    Old Ben Mine #11                        UG                18.3           18.3              -      2.3   11,100

Bluegrass Coal Development Co.
    Evergreen                               S                 31.3           31.3              -      1.0   12,350
    Pike County                            UG&S               37.3           37.3              -      1.2   12,500
    R. & F.                                 S                 31.6           31.6              -      3.8   11,800
    Turris                                  UG                71.3           71.3              -      3.0   10,400

Triton Coal Company
    Buckskin                                S                466.4          300.7          165.7      0.5    8,350
    North Rochelle                          S                329.0          293.7           35.3      0.2    8,850
                                                           -------          -----          -----

  Total assigned economic reserves                         1,022.3          817.5          204.8
UNASSIGNED ECONOMIC RESERVES                                 170.4          123.1           47.3
                                                           -------          -----          -----
TOTAL ECONOMIC RESERVES                                    1,192.7          940.6          252.1
                                                           =======          =====          =====
</TABLE>

                                      7


<PAGE>   10


(1)  "Measured" reserves are those with the highest degree of geologic
     assurance.  Coal quantities are computed from bed thickness measurements
     in core holes, mine workings, and bed outcrops of prospect trenches.  The
     measurement sites are so closely spaced that coal bed continuity, geometry
     and minability are well established.   Generally, coal that lies within
     1/4 mile of a reliable point of coal thickness measurement is considered
     in the measured class.

(2)  "Indicated" reserves are those with a moderate degree of geologic
     assurance.  The assurance, although lower than for proven reserves, is
     high enough to assume continuity between points of measurement.  Coal that
     lies between 1/4 and 3/4 mile from a point of coal thickness measurement
     is considered in the indicated class.

(3)  The percentage of sulfur content is not necessarily indicative of the
     suitability of the coal for consumption in compliance with applicable air
     quality laws.  Such suitability is dependent upon a number of other
     factors, including other coal characteristics (such as BTU content), the
     emission control technology used or to be used at the power station, and
     specific emission limitations applicable to that station.  Current
     estimates of coal reserves owned or leased by the Company that would be
     considered "compliance" (coal which, when burned, emits less than 1.2
     pounds of sulfur dioxide per million BTU) coal are 0.9 billion tons.  In
     addition, the Company estimates that it has 0.3 billion tons of reserves
     which, when burned, would emit less than 2.0 pounds of sulfur dioxide per
     million BTU.

(4)  54.8 million tons of reserves previously shown as assigned at Marrowbone
     have been reclassified as unassigned to reflect the legal ownership of
     those reserves.

     Of the total 1,192.7 million tons of economic reserves shown above,
approximately 15.0% are owned by Zeigler or its subsidiaries, approximately
18.3% are leased from private parties, and approximately 66.7% are leased from
the federal government.  Of the remaining 870.3 million tons of
non-economically recoverable coal deposits, approximately 66.4% are owned by
Zeigler or its subsidiaries, approximately 32.1% are leased from private
parties, and approximately 1.5% are leased from state governments.

     The private leases generally have terms of between 10 and 20 years,
although they generally allow Zeigler the right to renew the lease for a stated
period or to maintain the lease in force until the exhaustion
of minable and merchantable coal.  These leases provide for royalties to be
paid to the lessor either as a fixed amount per ton or as a percentage of the
sales price.  Many leases also require payment of a lease bonus or minimum
royalties, payable either at the time of the execution of the lease or in
periodic installments.  In most cases, the minimum royalty payments are applied
to reduce future production royalties.  The loss of certain leases could
adversely affect Zeigler's ability to develop the related mine.

     Zeigler holds four federal coal leases which are administered by the
United States Department of the Interior pursuant to the Federal Coal Leasing
Amendments Act of 1976.  These leases cover the Company's principal reserves in
Wyoming.  Each of these leases continues for an indefinite term provided there
is diligent development of the lease and continued operation of the related
mine or mines.  The Bureau of Land Management ("BLM") has asserted the right to
adjust the terms and conditions of these leases, including rents and royalties,
after the first 20 years of their life and at 10-year intervals thereafter.
Annual rents under the Company's BLM leases are now generally $3 per acre.
Production royalties on BLM leases are 12.5 percent of the gross proceeds of
coal mined and sold.


                                      8


<PAGE>   11


     Consistent with industry practices, the Company conducts limited
investigations of title to its coal properties prior to leasing.  The title of
the lessors or grantors and the boundaries of the Company's leased properties
are not completely verified until such time as the Company prepares to mine
such reserves.  If defects in title or boundaries of undeveloped reserves arise
in the future, the Company's control of and right to mine such reserves could
be adversely affected.


  NONCOAL OPERATIONS

     The Company's noncoal operations primarily consist of EnerZ, the Encoal
clean coal demonstration plant, Zeigler Environmental Services Company, two
east coast transloading terminals, and Zenergy, Inc.

     EnerZ Corporation, located in New York, New York, is the Company's energy
trading and marketing subsidiary.  The Company's eight professional staff
members participate in the wholesale electric power market, and in both bulk
wholesale and retail gas marketing.  Approximately 80% of the 1997 revenues
were generated from electricity transactions with the remainder attributable to
natural gas trading.

     Encoal Corporation owns a pilot plant at the Buckskin Mine in Wyoming
which was constructed in cooperation with the Department of Energy ("DOE") as
part of the Clean Coal Technology Program, a DOE program designed to develop
new technologies for producing and using clean coal.  The demonstration plant
was idled in September 1997.

     Zeigler Environmental Services Company, located in Fairview Heights,
Illinois, is the Company's construction management and reclamation services
subsidiary.

     Pier IX, located on 66 acres in Newport News, Virginia, is served by the
CSX railroad and deals primarily with coal and cement. Pier IX has an annual
throughput capacity of 12.0 million tons per year.

     Shipyard River Coal Terminal, in Charleston, South Carolina, is located on
50 acres of land at the mouth of the Port of Charleston.  The terminal accesses
both rail and water transportation and handles liquid, granular, and bulk
materials including coal, fertilizers, aggregates, asphalt and other industrial
minerals.  Shipyard has an annual throughput capacity of 2.5 million tons per
year and is served by the CSX and Norfolk Southern railroads.

     Zenergy, Inc., owns a 30% interest in Louisiana Generating LLC
("Generating"), which has made an offer of $1.2 billion to purchase out   of
bankruptcy the non-nuclear assets (the "Cajun Assets") of Cajun Electric Power
Cooperative, Inc. of Baton Rouge, Louisiana.  This proposal was named the lead
proposal by Cajun's court-appointed bankruptcy trustee.  The trustee filed a
plan of reorganization that incorporates Generating's proposal, including a
definitive purchase agreement (the "Purchase Agreement") containing bankruptcy
court-approved buyer protection provisions.

     Cajun's non-nuclear assets include 1,463 megawatts of coal burning
capacity and 220 megawatts of gas-burning capacity, along with related
operating facilities such as a load control center.  Cajun supplies about 80%
of the power to the rural Louisiana markets and is currently operating at about
60% capacity.  Cajun filed for bankruptcy protection in December 1994.


                                      9

<PAGE>   12


     The consummation of Generating's acquisition of the Cajun Assets is
subject to a number of conditions, including, without limitation, the entering
of a final and non-appealable order by the United States Bankruptcy Court for
the Middle District of Louisiana (the "Bankruptcy Court") confirming the
trustee's plan of reorganization that incorporates the terms and conditions of
the Purchase Agreement, the receipt of all regulatory approvals, and other
conditions customary for transactions such as the acquisition of the Cajun
Assets.  Two other competing reorganization plans for Cajun have been filed
with the Bankruptcy Court.  Because of the uncertainty as to whether or when
the Bankruptcy Court will confirm the trustee's plan of reorganization
(especially in light of the competing reorganization plans and competitive
bidding nature of the bankruptcy proceeding) and as to whether all of the
conditions to consummating the acquisition of the Cajun Assets can be
satisfied, there can be no assurance that Generating's acquisition of the Cajun
Assets will be consummated upon the current terms and provisions of the
Purchase Agreement or any other terms. On March 18, 1998, Generating submitted
its final proposal for the acquisition of the Cajun Assets for a purchase price
of approximately $1.2 billion.  Generating's purchase price exceeds both of the
other competing bids for the acquisition of the Cajun Assets.  After March 18,
1998, none of the proposals for the acquisition of the Cajun Assets may be
altered. The current Bankruptcy Court confirmation hearing schedule calls for
final briefs to be submitted by May 26, 1998, and for a decision to be rendered
shortly thereafter.

     Under the existing agreement regarding Cajun, Zenergy, Inc., Southern
Energy-Cajun, Inc., and NRG Energy, Inc., respectively, own 30%, 40%, and 30%
of the ownership interests in Generating, and would each contribute their pro
rata share of the capital required by Generating to consummate the acquisition
of, and operate, the Cajun Assets.  The Company currently estimates that, if
Generating is successful in its bid to acquire the Cajun Assets, Zenergy's
capital investment in Generating will be approximately $80 million.  The
Company is in the process of developing financing alternatives to fund its
investment in Generating, but presently does not have any commitments with
respect to funding such investment.

     Corporate Headquarters - The Company owns a 44,000 square-foot, two-story
office building in Fairview Heights, Illinois, which serves as Zeigler Coal
Holding Company's executive offices and headquarters for several of the
Company's noncoal subsidiaries.  Administrative offices for Mountaineer Coal
Development Company, Bluegrass Coal Development Company, and Triton Coal
Company are held under leases in Charleston, West Virginia; Lexington,
Kentucky; and Gillette, Wyoming, respectively.

EMPLOYEE AND LABOR RELATIONS

     As of December 31, 1997, Zeigler and its subsidiaries employed a total of
2,022 persons, of which approximately 651 were represented by the UMWA and
covered by the terms and conditions of the National Bituminous Coal Wage
Agreement ("NBCWA").  The current NBCWA expires on December 31, 2002.

     Current UMWA Contract

     Old Ben Coal Company is a member of the Bituminous Coal operators
Association ("BCOA") which recently entered into a new five year collective
bargaining agreement with the United Mine Workers of America ("UMWA") effective
January 1, 1998.  The new agreement provides for wage and pension increases for
employees but also provides for greater flexibility in scheduling work.  There
are no reopener provisions for the new agreement.

     Although Marrowbone Development Company is not a member of the BCOA, it
recently agreed to become bound by the terms and conditions of the 1998
BCOA/UMWA agreement.

     Apart from work stoppages which may occur upon termination of a collective
bargaining agreement, Zeigler Companies may from time to time be subject to
certain unauthorized work stoppages or wildcat strikes.  Typically, these
events are isolated, short in duration and localized.


                                      10

<PAGE>   13

     Coal Industry Retiree Health Benefit Act of 1992

     The Coal Industry Retiree Health Benefit Act of 1992 (the "Health Benefits
Act") was enacted in October 1992 to provide for the funding of health benefits
for retirees who were UMWA retirees. The essential feature of the Health
Benefits Act is to remove the UMWA health benefit plans from the collective
bargaining process and eliminate the per-hour-worked method of funding the UMWA
health benefit plans.  The Health Benefits Act establishes a trust fund to
which "signatory operators," including Old Ben Coal Company, operators who are
signatory to the current NBCWA or prior NBCWAs, and "related persons," are
obligated to pay annual premiums for assigned beneficiaries, together with a
pro rata share for certain beneficiaries ("unassigned beneficiaries") who never
worked for such employers, in amounts to be determined by the Secretary of
Health and Human Services on the basis set forth in the Health Benefits Act.
The expense under this legislation, which is recognized as contributions are
made, amounted to $3.4 million in 1997.  Based upon independent actuarial
estimates, Zeigler believes the amount of its obligation under the legislation
to be approximately $21.6 million as of December 31, 1997, using a 7.25%
discount rate.

REGULATION

     The possibility exists that new legislation and/or regulations may be
adopted which may have a significant impact on Zeigler's mining operations
and/or its customers' ability to use coal and may require the Company or its
customers to change their operations significantly or incur substantial costs.

     Numerous governmental permits or approvals are required for mining
operations.  Zeigler believes all permits currently required to conduct its
present mining operations have been obtained. The Company may be required to
prepare and present to federal, state or local authorities data pertaining to
the effect or impact that any proposed exploration for or production of coal
may have upon the environment.  All requirements imposed by any such authority
may be costly and time-consuming and may delay commencement or continuation of
exploration or production operations.  Future legislation and administrative
regulations may emphasize the protection of the environment and, as a
consequence, the activities of the Company may be more closely regulated.  Such
legislation and regulations, as well as future interpretations of existing
laws, may require substantial increases in equipment and operating costs to the
Company and delays, interruptions or a termination of operations, the extent of
which cannot be predicted.

     The Company's independent operating subsidiaries endeavor to conduct
mining operations in compliance with all applicable federal, state and local
laws and regulations.  However, because of extensive and comprehensive
regulatory requirements, violations during mining operations are not unusual in
the industry and, notwithstanding compliance efforts, the Company does not
believe such violations can be completely eliminated.  None of the violations
to date or the monetary penalties assessed upon the Company's subsidiaries have
been material to the Company.

     While it is not possible to quantify the costs of compliance with all
applicable federal and state laws, those costs have been and are expected to
continue to be significant.  It is estimated that Zeigler made capital
expenditures for environmental control facilities in the amount of
approximately $.6 million in 1997. These costs are in addition to $11.2 million
of reclamation expenditures.  Compliance with these laws has substantially
increased the cost of coal mining, but is, in general, a cost common to all
domestic coal producers.


                                      11

<PAGE>   14

     Most of the states in which the Company operates have state programs for
mine safety and health regulation and enforcement.  In combination, federal and
state safety and health regulations in the coal mining industry is perhaps the
most comprehensive and pervasive system for protection of employee safety and
health affecting any segment of the industry.  The most minute aspects of mine
operations, particularly underground mine operations, are subject to extensive
regulation.  This regulation has a significant effect on the Company's
operating costs.  However, the Company's competitors in all of the areas in
which it operates are subject to the same degree of regulation.

     The coal mining industry is subject to regulation by federal, state, and
local authorities on matters such as employee health and safety, permitting and
licensing requirements, air quality standards, water pollution, plant and
wildlife protection, the reclamation and restoration of mining properties after
mining is completed, the discharge of materials into the environment, surface
subsidence from underground mining, and the effects of mining on groundwater
quality and availability.  In addition, the utility industry is subject to
extensive regulations regarding the environmental impact of its power
generation activities which could affect demand for coal.  The following
summarizes the more significant regulations impacting the industry.

     Clean Air Act Amendments of 1990 - One of the largest challenges the
     industry has faced is the implementation of the Clean Air Act Amendments
     of 1990 (the "Amendments").  Phase I was effective January 1, 1995 and
     called for a reduction in SO(2) emissions to 2.5 pounds per mmBTU, for
     certain power plants, multiplied by each plant's annual average fuel
     consumption between 1985 and 1987.  Phase II, effective January 1, 2000
     requires further reduction of SO(2) emissions to 1.2 pounds per mmBTU for
     nearly all power plants.  The Amendments  require coal users to either
     purchase lower-sulfur products, invest in scrubbers, or purchase emission
     allowances in order to comply.  The effectiveness of these standards will
     cause an increase in demand for "compliance" coal (coal that emits less
     than 1.2 pounds of SO(2) per mmBTU) with a corresponding decrease in demand
     for higher-sulfur coal. Coal producers have reacted to this trend by
     shifting their investments away from the high-sulfur regions in the
     Midwest towards the lower-sulfur regions such as Appalachia and the
     southern Powder River Basin.  The majority of utilities have been using a
     combination of lower-sulfur coal and emission allowances to meet the
     requirements of Phase I of the Amendments, since the installation of
     scrubbers is both expensive and time consuming.  So far, it has generally
     not been necessary for utilities to drastically change their operations to
     meet the requirements of Phase I.  It is difficult to predict how
     utilities will meet the challenges of the Phase II requirements, and the
     resulting effect on coal demand. The Amendments also require existing
     major sources of nitrogen oxides in moderate or higher ozone
     non-attainment areas to install reasonably available control technology
     ("RACT") for nitrogen oxides, which are precursors of ozone.  The area
     from northern Virginia through Maine has been designated as an ozone
     transport region ("OTR"). Installation of RACT was required by May 1995
     for major sources throughout the OTR and other areas designated as being
     in a moderate or higher state of non-attainment of national ambient air
     standards for ozone.  Such sources generally include coal-fired power
     plants.  A regional commission established for the OTR, the Ozone
     Transport Commission ("OTC"), has been formed to make recommendations to
     the EPA for additional control measures. Both installation of RACT and any
     control measures beyond RACT that the OTC, other states, and the EPA may
     require could make it more costly to operate coal-fired power plants and,
     depending on the requirements of individual state attainment plans and the
     development of revised new source performance standards, could make coal a
     less attractive fuel alternative in the planning and building of power
     plants in the future.

                                      12

<PAGE>   15


   Comprehensive Environmental Response, Compensation and Liability Act -
   The federal Comprehensive Environmental Response, Compensation and Liability
   Act ("CERCLA") and similar state laws affect coal mining operations by
   imposing clean-up requirements for threatened or actual releases of hazardous
   substances that may endanger public health or welfare or the environment.
   Under CERCLA, joint and several liability may be imposed on waste generators,
   site owners and operators and others regardless of fault or the legality of
   the original disposal activity. Waste substances generated by coal mining and
   processing are generally not regarded as hazardous substances for purposes of
   CERCLA.

   Clean Water Act - The federal Clean Water Act imposes restrictions on
   effluent discharge into waters.  Regular monitoring, as well as compliance
   with reporting requirements and performance standards, are preconditions for
   the issuance and renewal of permits governing the discharge of pollutants
   into waters.

   Resource Conservation Recovery Act - The federal Resource Conservation
   Recovery Act ("RCRA") imposes requirements for the treatment, storage and
   disposal of hazardous wastes.  Although many mining wastes are excluded from
   the regulatory definition of hazardous waste, and coal mining operations
   covered by SMCRA (defined below) permits are exempted from regulation under
   RCRA by statute, the EPA is studying the possibility of expanding regulation
   of mining wastes under RCRA.

   Surface Mining Control and Reclamation Act - The federal Surface Mining
   Control and Reclamation Act of 1977 ("SMCRA") establishes mining and
   reclamation standards for all aspects of surface mining as well as many
   aspects of deep mining. SMCRA and similar state statutes, among other
   things, require that mined property be restored in accordance with specified
   standards pursuant to an approved reclamation plan.  In addition, the
   Abandoned Mine Lands Act ("AML"), which is part of SMCRA, imposes a tax on
   all current mining operations, the proceeds of which are used to restore
   mines closed before 1977.  The current tax is 35 cents per ton on
   surface-mined coal and 15 cents per ton on underground-mined coal.

   SMCRA also requires that comprehensive environmental protection and
   reclamation standards be met during the course of and upon completion of
   mining activities.  For example, SMCRA requires coal companies to restore a
   surface mine to approximate original contour as contemporaneously as
   practicable with surface coal mining operations.  The mine operator must
   submit a bond or otherwise secure the performance of these reclamation
   obligations.  Permits for surface mining operations must be obtained from
   the federal Office of Surface Mining Reclamation and Enforcement or, where
   state regulatory agencies have adopted federally approved state programs
   under SMCRA, the appropriate state regulatory authority.

   Under SMCRA, responsibility for unabated violations, unpaid civil penalties
   and unpaid reclamation fees of independent contract mine operators can be
   imputed to other companies which are deemed, according to the regulations,
   to have "owned" or "controlled" the contract mine operator. Sanctions
   against the "owner" or "controller" are quite severe and can include being
   blocked from receiving new permits and revocation of any permits that have
   been issued since the time of the violations or, in the case of civil
   penalties and reclamation fees, since the time such amounts became due.


                                      13

<PAGE>   16


   Mine Health and Safety Acts - Stringent safety and health standards have
   been imposed by federal legislation since 1969 when the federal Coal Mine
   Health and Safety Act of 1969 (the "1969 Act") was adopted.  The 1969 Act
   resulted in increased operating costs and reduced productivity.  The Federal
   Mine Safety and Health Act of 1977 (the "1977 Act") significantly expanded
   the enforcement of health and safety standards. The 1977 Act imposes safety
   and health standards on all mining operations. Regulations are comprehensive
   and affect numerous aspects of mining operations, including training of mine
   personnel, mining procedures, blasting, the equipment used in mining
   operations and other matters.  The Mine Safety and Health Administration
   ("MSHA") monitors compliance with these federal laws and regulations.  In
   addition, as part of the 1969 Act and the 1977 Act, the Black Lung Benefits
   Act of 1969 and Black Lung Benefits Reform Act of 1977 require payments of
   benefits by all businesses conducting current mining operations to coal
   miners with pneumoconiosis (black lung) as described below.

   Federal Coal Leasing Amendments Act - Mining operations on federal lands in
   the West are also affected by regulations of the U.S. Department of the
   Interior.  The Federal Coal Leasing Amendments Act of 1976 (the "1976 Act")
   amended the Mineral Lands Leasing Act of 1920 which authorized the leasing
   of federal lands for coal mining.  The 1976 Act increased the royalties
   payable to the United States Government for federal coal leases and required
   diligent development and continuous operations of leased reserves within a
   specified period of time.

   Black Lung Benefits - In order to compensate miners who were last employed
   as miners prior to 1970, the Black Lung Benefits Revenue Act of 1977 and the
   Black Lung Benefits Reform Act of 1977, as amended by the Black Lung
   Benefits Revenue Act of 1981 and the Black Lung Benefits Amendments of 1981
   (the "1981 Acts"), levied a tax on production of $1.10 per ton for
   deep-mined coal and $0.55 per ton for surface-mined coal, but not to exceed
   4.4% of the sales price.  In addition, the 1981 Acts provide that certain
   claims for which coal operators had previously been responsible will be
   obligations of the government trust funded by the tax.  The Revenue Act of
   1987 extended the termination date of the tax from January 1, 1996 to the
   earlier of January 1, 2014, or the date on which the government trust
   becomes solvent.  Most companies have set aside reserves  for workers last
   employed as miners after 1969.

   EnerZ Corporation is subject to FERC regulation as a wholesale power
marketer and is required to file its rate schedule and quarterly transaction
reports with the FERC.  The Company's other non-mining businesses are also
subject to federal, state and/or local regulation.


                                       14

<PAGE>   17




                              ITEM 2.  PROPERTIES

     The information required by this item concerning the Company's properties
is included under Item 1., "Business" above.  Such information is incorporated
herein by reference.


                          ITEM 3.  LEGAL  PROCEEDINGS

     The information required by this item concerning the Company's legal
proceedings is included in Note 16 to the Company's consolidated financial
statements under Item 8., "Financial Statements and Supplementary Data."  Such
information is incorporated herein by reference.


          ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers and certain key employees of Zeigler, their ages as
of December 31, 1997, and positions held during the last five years are as
follows:


<TABLE>
<CAPTION>
         Name                Age                     Position
         ----                ---                     --------
<S>                           <C>  <C>
Chand B. Vyas ..............   53   President, Chief Executive Officer and Director
Michael V. Altrudo .........   49   President of Franklin Coal Sales Company
Francis L. Barkofske .......   58   Senior Vice President & Chief Financial Officer
Michael D. Bauersachs ......   33   President of Phoenix Land Company
W. Douglas Blackburn, Jr. ..   47   Senior Vice President, Operations
Sharad M. Desai ............   49   Treasurer
Paul D. Femmer .............   45   Controller
Bruce W. Kranz .............   49   Vice President, Zeigler Environmental Services
                                     Company
Coy K. Lane ................   37   President of Bluegrass Coal Development
                                     Company
James W. Mahler ............   49   President of Americoal Development  Company
Robert L. McPeak ...........   45   President, Zeigler Property Development Company
Brent L. Motchan ...........   48   Vice President, General Counsel and Secretary
Tayeb B. Tahir .............   43   President of EnerZ Corporation
Alan D. Williams ...........   51   President of Zenergy, Inc.
John C. Willson ............   48   President of Triton Coal Company
David M. Young .............   47   President of Mountaineer Coal Development Company
</TABLE>


     Chand B. Vyas - Mr. Vyas has been President since 1991 and Chief Executive
Officer since January 1, 1995.  Prior to his election as Chief Executive
Officer, Mr. Vyas held the following positions with the Company:  1991-1994
Chief Operating Officer; 1989-1991 Executive Vice President; February 1989 to
November 1989 Senior Vice President - Finance and Administration; 1985-1989
Vice President and Chief Financial Officer.  Mr. Vyas joined Zeigler Coal
Company in 1982 as a Director and Vice President, Finance.  He is a past
director of the Center for Energy and Economic Development, the National Coal
Association and the National Mining Association.


                                      15

<PAGE>   18

     Michael V. Altrudo - Mr. Altrudo has been President of Franklin Coal Sales
Company, the Company's marketing and sales subsidiary since November 1995.
From November 1992 to October 1995, he was Executive Vice President of Sales
for Franklin Coal Sales Company.  He was Vice President of Sales for
Franklin Coal Sales Company from April 1992 to October 1992.  From February
1988 to March 1992, he was Vice President of Domestic Coal & Coke Sales with
Drummond Coal Sales Company.

     Francis L. Barkofske - Mr. Barkofske has been Senior Vice President and
Chief Financial Officer since October 1997.  From September 1996 to October
1997 he was Vice President, Administration; from November 1995 to August 1996,
he was Vice President, Corporate Affairs; from October 1994 to October 1995, he
was Vice President, External Affairs; and from July 1992 to October 1994, he
was Vice President, Government Relations.  From October 1990 to July 1992, Mr.
Barkofske was a partner and Chairman of the Natural Resources Practice area of
the law firm of Thompson & Mitchell. Prior thereto, he was Senior Vice
President, Legal & Public Affairs and Secretary of Peabody Holding Company,
Inc.

     Michael D. Bauersachs - Mr. Bauersachs has been President of Phoenix Land
Company since May 1996.  From January 1996 to April 1996, he was General
Manager of Land and Development and from August 1994 to December 1995, he was
Manager of Property Development for Phoenix Land Company.  Prior to joining the
Company, Mr. Bauersachs was Vice President of Real Estate for Ark Land Company,
a subsidiary of Arch Mineral Corporation.  From 1993 and prior thereto, he held
various real estate positions within Ark Land Company.

     W. Douglas Blackburn, Jr. - Mr. Blackburn has been Senior Vice President,
Operations since November 1994. Mr. Blackburn joined the Company on June 20,
1994 as the President of Old Ben Coal Company.  Prior thereto, he served as a
consultant to the coal industry from 1992 to 1994 and as Senior Vice President
of Operations at Mapco Coal, a coal mining company, from 1990 to 1992.

     Sharad M. Desai - Mr. Desai has been Treasurer of the Company since
January 1993.  He previously held various positions in the financial and
accounting areas at Zeigler since joining the Company at its inception.

     Paul D. Femmer - Mr. Femmer has been Controller of the Company since March
1994.  From May 1990 to March 1994 he was Controller of Sigma Chemical Company.
Prior thereto, he was a Senior Manager with Price Waterhouse, LLP.

     Bruce W. Kranz - Mr. Kranz has been Vice President of Zeigler
Environmental Services Company since December 1996.  From 1992 until joining
Zeigler Environmental Services Company, Mr. Kranz was a Branch Manager and
Principal-in-Charge for the Cleveland, Ohio office of Metcalf & Eddy, Inc., a
professional services consulting company.

     Coy K. Lane - Mr. Lane has been President of Bluegrass Coal Development
Company since November 1995.  From March 1995 to October 1995, he was President
of Old Ben Coal Company.  In October 1994, he joined Zeigler Coal Holding
Company as General Manager of the Indiana Operations of Old Ben Coal Company
until February 1995.  From January 1994 to September 1994, he was General
Manager of the Ashland Division of Pittston Coal Group for Addington, Inc.
operations.  From April 1993 to December 1993, he was Manager of Operations
Development for Addington, Inc.  From May 1990 to March 1993, he was Assistant
Vice President of Operations for Pen Coal Corporation.

     James W. Mahler - Mr. Mahler has been President of Americoal Development
Company, the Company's non-mining and business development subsidiary, since
1992.  Prior thereto, he was Vice President, Administration for Zeigler, a
position he held from 1990 to 1992.  From 1988 to 1990, Mr. Mahler was
Controller of BP Coal (U.S.A.) Inc.


                                      16

<PAGE>   19

     Robert L. McPeak - Mr. McPeak has been President of Zeigler Property
Development Company since May 1997.  Prior thereto he was Manager of Material
Service of the Company, a position he held from 1986 to 1997.

     Brent L. Motchan - Mr. Motchan has been Vice President, General Counsel
and Secretary of the Company since 1985.  From 1977 to 1985, he was the
Assistant General Counsel and Director of Real Estate for Arch Mineral
Corporation, a coal mining company.

     Tayeb B. Tahir - Mr. Tahir has been President of EnerZ Corporation since
September 1996.  From 1994 to August 1996, he was with PIRA Energy Group in New
York where he was Director, International Global Gas Group.  Prior to 1994, he
served various positions with Consolidated Edison Company.

     Alan D. Williams - Mr. Williams has been President of Zenergy, Inc. since
August 1997.  From March 1997 to July 1997 he was Vice President Business
Development & Marketing of the Company.  From February 1996 to March 1997, he
was Manager of Business Development of the Company and from April 1993 to
January 1996, he was Senior Vice President of Marketing for Franklin Coal
Sales, the Company's marketing subsidiary.  Prior thereto, he was President of
Triton Coal Company.

     John C. Willson - Mr. Willson has been President of Triton Coal Company
since January 1996.  From March 1995 to December 1995, he was Vice President of
SMC Western Operations.  From 1989 to 1994, Mr. Willson was President of the
Eastern Division of Costain Coal, Inc.

     David M. Young - Since November 1995, Mr. Young has been President of
Mountaineer Coal Development Company.  Prior thereto, he was President of
Marrowbone Development Company and Wolf Creek Collieries Company.  From
November 1992 to June 1994, Mr. Young was President of Old Ben Coal Company.
He was Vice President of the Company's Illinois Division of mining operations
from September 1991 to November 1992.  Mr. Young was employed in various
capacities by Old Ben Coal Company's West Virginia Division prior to September
1991.





                                       17

<PAGE>   20




                                    PART  II


                 ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK
                        AND RELATED SHAREHOLDER MATTERS

     Zeigler's common stock, $.01 par value, is listed and traded on the New
York Stock Exchange.  The table below presents its high and low market prices,
and dividends declared per common share for the three years ended December 31,
1997.

                                    Market Price
                                    ------------
               Quarter Ended:       High     Low         Dividends
                                    ----     ---         ---------
                1997
                  Fourth .......   $24       $15 1/4      $.075
                  Third ........    27 1/4    22 7/8       .075
                  Second .......    27 7/8    23           .075
                  First ........    27 1/2    21 1/4       .075
                1996
                  Fourth .......   $22 1/4   $17 1/4      $.075
                  Third ........    17 3/4    12 3/4       .075
                  Second .......    17 3/4    14 1/2        .05
                  First ........    14 3/4    12 1/4        .05
                1995
                  Fourth .......   $14 1/4   $10 5/8      $ .05
                  Third ........    13 1/4    11 5/8        .05
                  Second .......    12 1/4     9 3/4        .05
                  First ........    12 1/8    10            .05


     Long-term debt agreements as of December 31, 1997 include certain
dividend-restrictive covenants. Under the $200 million revolving credit
agreement, the most restrictive covenant limits dividends to an amount in
aggregate of no more than $40 million (which is exclusive of dividends declared
and paid prior to January 15, 1996).

     The Company intends to continue paying regular cash dividends.  However,
future dividends will be at the sole discretion of the Board of Directors and
will depend upon Zeigler's level of earnings, financial position, capital
expenditures and debt service requirements, restrictions in debt covenants and
other factors that the Board of Directors may deem relevant.

     As of March 13, 1998, there were 344 shareholders of record of the
Company's common stock and approximately 10,000 shareholders for whom
securities firms acted as nominees.



                                       18

<PAGE>   21




                       ITEM 6.   SELECTED FINANCIAL DATA

                      SUMMARY FINANCIAL AND OPERATING DATA

     The information in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7., and the Company's consolidated financial statements
under Item 8.




<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                    ------------------------------------------------
                                                                    1997      1996       1995        1994       1993
                                                                    ----      ----       -----       -----      ----
                                                                           (In millions, except per share data)
<S>                                                               <C>         <C>       <C>        <C>         <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Total revenues ......................................               $800.8     $731.6     $783.1     $870.9    $873.0
Costs and expenses:
  Cost of coal sales .................................               503.9      613.1      686.2      738.8     776.8
  Selling, general and administrative expenses ........               16.0       21.3       20.7       20.2      13.5
  Other costs and expenses ............................              203.1       22.5       18.5       22.7      28.6
  Gain on curtailment of postretirement benefits (1) ..                -        (16.3)       -          -         -
  Reduction in accrued pneumoconiosis benefits (2) ....               (8.2)       -        (23.3)       -         -
  Provision for asset impairments and accelerated
    mine closings (3) ..................................               -          -        114.7        -        55.7
Other income:
  Proceeds from contract settlement .................                  -          -        (45.5)       -         -
                                                                    -------    ------     ------     ------    ------

Operating earnings (loss) ...........................                 86.0       91.0       11.8       89.2      (1.6)
Net interest expense ................................                 17.0       21.7       27.5       42.1      52.2
Income taxes (benefit) ..............................                 10.4       11.3       (4.5)      13.6     (19.5)
                                                                    -------    ------     ------     ------    ------
Net earnings (loss) before extraordinary items and
 cumulative effects of changes in accounting ........                 58.6       58.0      (11.2)      33.5     (34.3)
Extraordinary item - Loss on early retirement of
 debt, net of taxes (4) .............................                  -          -          -          8.4       -
Cumulative effects of changes in accounting (5) .....                  -          -          -           -     (111.9)
                                                                    -------    -------    ------     -------   ------
Net earnings (loss) .................................               $ 58.6     $ 58.0     ($11.2)    $ 25.1   ($146.2)
                                                                    =======    =======    ======     ======    ======
Net earnings (loss) per share:
 Basic ..............................................               $  2.07    $  2.04    ($  .40)   $ 1.01   ($ 6.29)
                                                                    =======    =======    =======    ======   =======
 Diluted ............................................               $  2.05    $  2.04    ($  .40)   $ 1.01   ($ 6.29)
                                                                    =======    =======    =======    ======   =======

Weighted average shares outstanding:
 Basic ..............................................                 28.3       28.4       28.4       24.9      23.2
 Diluted ............................................                 28.6       28.5       28.4       24.9      23.2

CONSOLIDATED BALANCE SHEET DATA (AT YEAR-END):
Working capital .....................................               $ 22.2     $ 84.9     $ 29.8     $ 67.6    $ 29.9
Total assets ........................................              1,094.0    1,050.6    1,025.2    1,165.5   1,231.2
Total long-term debt (6) ............................                275.8      344.8      344.8      450.1     551.8
Other long-term liabilities (7) .....................                391.8      427.2      481.4      471.0     468.4
Total shareholders' equity ..........................                177.7      132.6       81.5       98.4       6.1

OTHER DATA:
Net cash provided by operating activities ...........               $ 79.8     $131.9     $160.3     $ 91.1    $130.4
Net cash used in investing activities ...............                 70.7       30.5       51.8       41.7      33.0
Net cash used in financing activities ...............                 14.1        6.1      111.0       96.8      92.8
Additions to property, plant and equipment ..........                 74.4       31.4       56.3       45.6      36.5
Payment of dividends ................................                  8.5        6.4        5.7        -          -
EBITDA (8) ..........................................                135.7      151.1      171.8      158.5     129.7
EBITDA/net interest expense .........................                  8.0        7.0        6.2        3.8       2.5
Total long-term debt/EBITDA .........................                  2.0        2.3        2.0        2.8       4.3
Tons produced (9) ...................................                 30.9       31.4       35.1       38.5      35.7
Tons sold(10) .......................................                 33.1       34.6       36.9       40.0      38.8
</TABLE>




                                       19

<PAGE>   22




(1)  Reflects a pretax reduction to the accrual for the Statement of Financial
     Accounting Standards ("SFAS") No. 106, Employers' Accounting for
     Postretirement Benefits Other than Pensions ("SFAS No. 106") obligation
     as a result of certain Midwestern employees'  re-employment or
     termination prior to vesting.

(2)  Reflects a pretax reduction to the accrual for the pneumoconiosis (black
     lung) claims liability which was based on a revised actuarial estimate as
     a result of the Company's favorable claims experience.

(3)  Reflects acceleration of the accruals related to mine closing costs and
     pretax writedowns in certain asset carrying values, primarily in
     connection with the idling, closing, and projected closing of certain
     mines earlier than previously forecast.

(4)  Reflects payment of a yield maintenance premium ($2.9 million, net of
     $1.0 million income tax benefit) and write-off of deferred financing costs
     ($5.5 million, net of $1.8 million income tax benefit) related to the
     prepayment of debt.

(5)  Reflects the cumulative effects to January 1, 1993 of changes in
     accounting principles for SFAS No. 106, ($95.1 million, net of $60.8
     million income tax benefit), and SFAS No. 109, Accounting for Income
     Taxes ("SFAS No. 109") ($16.8 million).

(6)  Excludes current maturities of long-term debt.

(7)  Includes accrued postretirement benefit obligations, accrued
     pneumoconiosis benefits, accrued mine closing costs and other long-term
     liabilities (other than debt and deferred income taxes).

(8)  EBITDA is defined as earnings (loss) before interest, income taxes,
     depreciation, depletion and amortization.  EBITDA excludes the cumulative
     effects of accounting changes related to SFAS No. 106 and SFAS No. 109,
     provision for asset impairments and accelerated mine closings, and
     reduction in accrued pneumoconiosis (black lung) benefits.  The Company
     believes EBITDA provides cash flow from operations as determined by
     generally accepted accounting principles, and EBITDA is not necessarily an
     indication of whether cash will be sufficient to fund cash requirements.

(9)  Reflects tons mined by the Company.  Tons produced are included in
     inventory prior to shipment.

(10) Includes tons mined by the Company plus tons bought by the Company in the
     open market and resold.












                                       20

<PAGE>   23




                ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                             RESULTS OF OPERATIONS

     Net earnings for the year ended December 31, 1997 were $58.6 million
($2.05 per diluted share)  compared to net earnings of $58.0 million ($2.04 per
diluted share) in 1996 and a net loss of $11.2 million ($.40 per diluted share)
in 1995.

     1997 net earnings benefited significantly from the following items, after
taxes:  (1) a $9.0 million positive change in customer claims expense
representing reversal in 1997 of a $4.5 million contingent claims liability
accrued in 1996, (2) reduced 1997 estimates of Old Ben reclamation liabilities
totaling $8.2 million, (3) a $6.2 million actuarially-based reduction in the
accrued liability for black lung benefits, (4) an unusually large $6.2 million
increase in accrued workers' compensation expense in 1996, and (5) a $3.9
million reduction in net interest expense.  These factors were substantially
offset by the following items, after taxes: (1) a $16.4 million reduction in net
earnings attributable to the 1996 closings of Old Ben Mine #24 and Old Ben Mine
#26, (2) a $12.2 million nonrecurring gain in 1996 on curtailment of
postretirement benefits, (3) a $6.8 million net earnings decrease related to
the December 1996 expiration of Buckskin's contract with Western Farmers
Electric Cooperative("WFEC"), (4) a $5.6 million net loss at EnerZ Corporation,
and (5) a $4.2 million increase in the net loss at the Company's technology
unit.

     The increase in 1996 net earnings compared to 1995 net earnings primarily
reflects nonrecurring provisions in 1995 for asset impairments and accelerated
mine closings of $86.0 million, lower mining costs and higher productivity of
$18.8 million, and the $12.2 million curtailment gain on postretirement
benefits.  These increases were partially offset by nonrecurring 1995 proceeds
from a contract settlement of $34.1 million, a reduction in the pneumoconiosis
benefit obligation of $17.5 million, and lower sales volume and sales prices
mainly related to the 1996 mine closings of $11.3 million.

REVENUES

     Coal sales - Coal sales declined $95.0 million in 1997 compared to 1996,
primarily reflecting the 1996 closures of Old Ben Mine # 24 and Old Ben Mine
#26 ($80.2 million), the 1996 closure of Old Ben Mine #20 ($30.5 million), and
the 1996 expiration of Buckskin's WFEC contract ($20.4 million), partially
offset by the reactivation of Old Ben Mine #11 ($14.3 million) and other small
sales increases.  The $56.5 million decline in 1996 coal sales compared to 1995
was largely due to the three mine closures described above and the 1995 closure
of Old Ben Mine #1 ($42.7 million), and price reductions on two major long-term
coal supply contracts ($13.6 million).

     Energy trading revenues - EnerZ Corporation's energy trading and marketing
activities commenced in January 1997.  Approximately 80% of EnerZ's 1997
revenues were generated from electricity transactions with the remainder
attributable to natural gas trading.

     Other revenues - Other revenues include throughput fees at the Company's
two east coast transloading terminals; farm, timber, coal trucking, and ash
disposal income; royalty and rental income from land and mineral interests; and
gains from sales of surplus properties.  The 1997 revenue decline was mainly
due to lower revenue from third-party coal leases and timber sales. The 1996
other revenue increase was primarily the result of additional sales of surplus
coal properties.


                                      21

<PAGE>   24



COSTS AND EXPENSES

     Cost of coal sales  - The decrease in cost of sales from 1996 to 1997
primarily reflects the impact of the 1996 mine closings, and reductions in
certain recorded liabilities.  During 1997, the Company reduced accrued mine
closing costs by approximately $23.4 million, including decreases in the
Old Ben reclamation obligations and contingent claims liabilities referred to
above.  In addition, actuarially-based liability reductions included $3.2
million for postemployment benefits and $2.4 million for postretirement
benefits.  Various other estimated liabilities were reevaluated and reduced in
total by $4.5 million. The decrease in cost of coal sales from 1995 to 1996
principally reflects significantly reduced sales from the closed mines, and
cost savings from idling Wolf Creek Collieries Mine #4 and outsourcing coal
formerly supplied by the idled mine.

     Energy trading costs - The increase in 1997 energy trading costs reflects
EnerZ's first year of operations.

     Other costs and expenses - These amounts are directly associated with
"other revenues" described above.  The increase in 1997 as compared to 1996
costs is largely due to higher costs for operating the Encoal plant after the
1996 expiration of Department of Energy co-funding.  The increase from 1995 to
1996 was mainly attributable to the timing of federal government cost-sharing
receipts at the Encoal plant.

     Selling, general and administrative expenses - Lower 1997 expenses were
mainly the result of lower stock appreciation unit and compensation-related
charges and the timing of other expenses.  Higher 1996 expenses were largely
due to expanded business development activities.

     Gain on curtailment of postretirement benefits - The 1996 curtailment gain
represents a reduction in the Company's recorded obligation to provide retiree
medical benefits to certain former Midwestern mining employees as a result of
their re-employment or termination prior to vesting.

     Reduction in accrued pneumoconiosis benefits - The 1997 and 1995 liability
decreases were based on updated actuarial estimates that recognized positive
trends in claims experience.

     Provision for asset impairments and accelerated mine closings - In July
1995, Old Ben closed   Mine #1, which resulted in a $32.3 million charge to
earnings.  In October 1995, the Company idled the high-cost Wolf Creek Mine #4
and took a related $33.3 million charge to earnings.  In December 1995, the
Company recorded impairment losses totaling $49.1 million upon idling Old Ben
Mine #11 and developing plans to close Old Ben Mine #24 and Old Ben Mine #26.


OTHER

     Proceeds from contract settlement - The Company received cash payments
totaling $45.5 million in 1995 in connection with the settlement of litigation
concerning a contract with Southern Indiana Gas and Electric Company.

     Net interest expense - Lower expense in 1997 primarily reflects higher
interest income earned due to larger cash investments and capitalized interest
on the development of the North Rochelle Mine.  Lower 1996 expense primarily
resulted from lower average borrowings.

     Income taxes (benefit) - Slightly lower pretax income and a lower tax rate
were responsible for the decrease in income taxes from 1996 to 1997.  Higher
pretax income was responsible for the increase in income taxes from 1995 to
1996.  The Company's effective tax rate was 15.0% in 1997 versus 16.3% in 1996
and 28.6% in 1995.  The 1997 and 1996 rate improvements were mainly due to the
benefits of tax loss carryforwards.


                                      22

<PAGE>   25


     The valuation allowance on deferred tax assets decreased $10.5 million
from 1996 to 1997.  This valuation allowance primarily relates to alternative
minimum tax ("AMT") credit carryforwards.  Although management believes that it
is unlikely to realize all of its AMT credit carryforward under existing law
and company structure, AMT credit carryforward is recognized to reduce the
deferred tax liability from the amount of regular tax on temporary differences
to the amount of tentative minimum tax on AMT temporary differences.


                              FINANCIAL CONDITION

     As of December 31, 1997, cash and equivalents totaled $103.3 million, down
from $108.3 million at December 31, 1996.  Cash generated from operating
activities was $79.8 million in 1997, compared to $131.9 million in 1996, and
$114.8 million in 1995 (excluding proceeds from 1995 contract settlement).

     Working capital was $22.2 million and $84.9 million at December 31, 1997
and 1996, respectively.  Accounts receivable and accounts payable have
increased $38.0 million and $42.6 million, respectively, in 1997 due to energy
trading activities at EnerZ Corporation.  Current maturities of long-term debt
represent the cash paid in January 1998 related to the early extinguishment of
the senior secured notes.  The noncash reduction in mine closing-related
liabilities contributed to the $12.7 million reduction in other accrued
expenses.

     Investing activities consumed $70.7 million in cash during 1997, compared
to $30.5 million in 1996 and $51.8 million in 1995.  In addition to $21.8
million in expenditures related to the development of the North Rochelle mine,
the Company continued to invest in property, plant and equipment needed to
support business growth and improve productivity.  The Company expects to spend
approximately $105.0 million for capital additions during 1998, including
approximately $61.0 million for continued development of the North Rochelle
mine. The Company anticipates that, if Louisiana Generating LLC is successful
in its bid to purchase the non-nuclear assets of Cajun Electric Power
Cooperative, Inc., the Company's investment in Louisiana Generating LLC will be
approximately $80.0 million.

     The Company used $14.1 million in cash for financing activities in 1997,
up from $6.1 million in 1996 but down from $111.0 million in 1995.  The major
applications of cash in 1997 were dividend payments and purchase of treasury
stock.  The major application of cash in 1996 was the payment of dividends.
Financing applications of cash in 1995 included debt repayments and, to a
lesser extent, dividends.

     The ratio of outstanding debt to total capital was 1.94 to 1.00 at
December 31, 1997 compared to 2.60 to 1.00 at December 31, 1996 and 4.23 to
1.00 at December 31, 1995.  The 1997 and 1996 ratio improvements reflect  1997
and 1996 earnings.

     Other sources of liquidity include a $200.0 million revolving credit
facility, of which $13.9 million was available as of December 31, 1997.

     On January 5, 1998, Zeigler prepaid $198.3 million of the 8.61% Senior
Secured Notes to the Noteholders, using $68.3 million of cash and
borrowing $130.0 million under a new Credit Agreement's revolving credit
facility (see below).  A related yield maintenance premium of $7.6 million was
also paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8.8 million
($6.6 million net of taxes) in the first quarter of 1998, consisting of the
yield maintenance premium and the write-off of deferred financing costs related
to the early extinguishment of debt.


                                      23

<PAGE>   26

     In April 1997, the Company executed a new Credit Agreement (the "New
Credit Agreement") with certain financial institutions, which provides for
senior unsecured revolving credit and letter of credit facilities aggregating
$700.0 million.  Interest on the revolving credit facility is paid in arrears
based on rates which fluctuate based on the prime rate or a certain Interbank
Offer Rate, as the Company may elect.  Amounts outstanding under the New Credit
Agreement are not secured.  The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance.  The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default.  The New Credit Agreement, which replaces the Amended and
Restated Credit Agreement dated October 19, 1994, became effective on January
5, 1998, in conjunction with the payment of the Company's outstanding 8.61%
Senior Secured Notes.

     The Company believes that it has the financial resources and borrowing
capacity needed to meet business requirements in the foreseeable future.


                                    OUTLOOK

     "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
of 1995 - The following Outlook and other items of this Report on Form 10-K
contain forward-looking statements that are subject to risks and uncertainties
inherent in the Company's business.  The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth herein and elsewhere in
documents filed with the Securities and Exchange Commission, including, without
limitation, the Company's Forms 10-K and 10-Q.  Forward-looking statements made
by the Company are used to describe business operations that fall into four
areas of operation.  Those operations are subject to factors that can
negatively or positively affect the Company's results as follows:


-    Coal:  The Company's coal operations can be negatively or positively
     impacted by factors including, but not limited to, weather; unexpected
     maintenance problems; variations in coal seam thickness, amount of
     overburden, rock and other natural materials; disruption of transportation
     services; labor problems; disputes and/or interruption of deliveries under
     coal contracts due to circumstances affecting the customer; regulatory
     uncertainties; legal proceedings; and other conditions.

-    Liquids from Coal (LFC) Technology:  The Company's technology operations,
     specifically the LFC clean coal technology, can be negatively or
     positively impacted by factors including, without limitation, the unproved
     commercial viability of the technology being developed; permitting and
     other regulatory uncertainties; the ability to obtain financing on
     acceptable terms; competition in the marketplace and uncertain demand for
     the output produced by the LFC process; engineering and construction
     risks; and other conditions.


-    Power:  The Company's operations in this area can be negatively or
     positively impacted by factors including, but not limited to, whether the
     Company's joint proposal to acquire out of bankruptcy the non-nuclear
     assets of Cajun Electric Power Cooperative, Inc. is confirmed by the
     bankruptcy court and approved by the relevant regulatory authorities;
     regulatory changes that limit or slow the advance of deregulation in the
     utility marketplace; competition in the wholesale power market;
     interruptions and uncertainties relating to fuel supply and
     transportation; and other conditions.


                                      24

<PAGE>   27

-    Asset Management:  The Company's operations in the area of asset
     management can be negatively or positively impacted by factors including,
     but not limited to, weather; unexpected maintenance problems; permitting
     and other regulatory uncertainties; legal proceedings; and other
     conditions.


     Possible Sale of Company - On December 3, 1997, the Company announced
that it was retaining an investment banking firm to explore various strategic
alternatives to maximize value for shareholders, including the possible sale of
the entire Company.  In connection therewith, the Board of Directors adopted a
change-in-control severance plan and retention bonus plan for all salaried
employees as well as special incentives for certain key employees.  The Company
has since retained the investment banking firm Credit Suisse First Boston and
prepared materials for interested parties.  The following estimates for 1998
may be affected by the possible sale of the Company or other strategic
alternatives.

     Estimates for 1998 - The Company's five largest customers are expected to
account for approximately 46% of total 1998 revenues, down from 52% in 1997.
Management has targeted further productivity gains in the coal segment.  The
Company's estimated effective tax rate for 1998 is approximately 20%.  The
Company expects that capital expenditures, excluding major acquisitions, will
increase to approximately $105 million in 1998.  In addition to planned
expenditures, incremental strategic investments will be considered on a
case-by-case basis.  Depreciation, depletion and amortization expense is
expected to range between $65 and $70 million for the year.

     Year 2000 Compliance - The inability of computers, software and other
equipment utilizing microprocessors to recognize and properly process data
fields containing a 2 digit year is commonly referred to as the Year 2000
compliance issue.  Such systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions in the U.S. and
internationally.  The potential costs and uncertainties associated with the
Year 2000 issue will depend on a number of factors, including software,
hardware and the nature of the industry in which a company operates.
Additionally, companies must coordinate with other entities with which they
electronically interact, such as customers, creditors and borrowers.

     The Company has identified all significant applications that will require
modification to ensure Year 2000 compliance.  The modification of all
internally developed applications is substantially complete.  The Company
expects to complete testing of the majority of all significant external
applications by early 1999.

     In addition, the Company is in the process of communicating with others
with whom it does significant business to determine their Year 2000 compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues.  However, there can no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have material adverse effect on the
Company.

     The total cost to the Company of these Year 2000 compliance activities has
not been, and is not anticipated to be material to its financial position or
results of operations in any given year.  These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors.  However, there
can be no guarantee that these estimates will be achieved and actual results
could differ from those plans.


                                      25

<PAGE>   28


     LFC Technology - In 1997, upon completion of planned development, the
Company idled Encoal Corporation's clean coal demonstration plant in Wyoming.
In 1998, marketing of the LFC technology, both domestically and
internationally, will continue as well as the evaluation of options regarding
Encoal.  The net book value of Encoal Corporation's assets and the Company's
related investment in clean coal technology was $6.7 million as of December 31,
1997.

     Inflation - Inflation may have a significant effect on the Company's
revenues and expenses.  Most of the Company's long-term contracts provide for
the adjustment over time of certain components of revenue either through
indices, formulas or direct pass-through of costs.  These long-term contract
provisions help mitigate some of the effects of increasing costs.  Due to the
capital-intensive nature of the Company's activities, inflation may also have a
significant impact on the development or acquisition of mining operations, the
future cost of final mine reclamation and the satisfaction of other long-term
liabilities, such as health care or pneumoconiosis (black lung) benefits.


                                       26

<PAGE>   29




              ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


       Index to Consolidated Financial Statements and Supplementary Data


                                                                     Page
                                                                     ----

Independent Auditors' Report ........................................  28

Financial Statements:

      Consolidated Statements of Operations, Years Ended December 31,
       1997, 1996 and 1995 ..........................................  29

      Consolidated Balance Sheets, December 31, 1997 and 1996 .......  30

      Consolidated Statements of Cash Flows, Years Ended December 31,
       1997, 1996 and 1995 ..........................................  32

      Consolidated Statements of Shareholders' Equity,
       Years Ended December 31, 1997, 1996 and 1995 .................  33

      Notes to Consolidated Financial Statements ....................  34
























                                       27

<PAGE>   30




                          INDEPENDENT AUDITORS' REPORT




To Zeigler Coal Holding Company:

     We have audited the accompanying consolidated balance sheets of Zeigler
Coal Holding Company and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.






DELOITTE & TOUCHE LLP

St. Louis, Missouri
February 5, 1998




                                       28

<PAGE>   31





                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                (Amounts in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                               -----------------------
                                                                             1997       1996        1995
                                                                             ----       ----        ----
<S>                                                                       <C>         <C>        <C>
REVENUES:
  Coal sales (Notes 13 and 16) .............................                $603,553   $698,523   $ 754,975
  Energy trading revenues ..................................                 166,474          -           -
  Other revenues ...........................................                  30,729     33,101      28,128
                                                                            --------   --------   ---------
Total revenues .............................................                 800,756    731,624     783,103
                                                                            --------   --------   ---------

COSTS AND EXPENSES:
  Cost of coal sales .......................................                 503,946    613,166     686,232
  Energy trading costs .....................................                 173,230          -           -
  Selling, general and administrative expenses .............                  16,017     21,271      20,740
  Other costs and expenses .................................                  29,823     22,514      18,487
  Gain on curtailment of postretirement benefits (Note 7) ..                       -    (16,295)          -
  Reduction in accrued pneumoconiosis benefits (Note 8) ....                  (8,244)         -     (23,299)
  Provision for asset impairments and accelerated
     mine closings (Note 10) ...............................                       -          -     114,662
                                                                            --------   --------   ---------
     Total costs and expenses ..............................                 714,772    640,656     816,822
                                                                            --------   --------   ---------

OTHER INCOME:
  Proceeds from contract settlement ........................                       -          -      45,500
                                                                             --------   --------   ---------

OPERATING EARNINGS .........................................                  85,984     90,968      11,781

NET INTEREST EXPENSE .......................................                  16,997     21,704      27,478
                                                                            --------   --------   ---------

EARNINGS (LOSS) BEFORE INCOME TAXES ........................                  68,987     69,264     (15,697)

INCOME TAXES (BENEFIT) (Note 3) ............................                  10,348     11,300      (4,484)
                                                                            --------   --------   ---------

NET EARNINGS (LOSS) ........................................                $ 58,639   $ 57,964    ($11,213)
                                                                            ========   ========   =========

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic ....................................................                  28,261     28,362      28,356
  Diluted ..................................................                  28,646     28,483      28,356

NET EARNINGS (LOSS) PER COMMON SHARE:

  Basic ....................................................                   $2.07      $2.04      ($0.40)
                                                                               =====      =====     =======
  Diluted ..................................................                   $2.05      $2.04      ($0.40)
                                                                               =====      =====     =======
</TABLE>








                See notes to consolidated financial statements.

                                       29

<PAGE>   32




                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                (Amounts in thousands, except per share amount)


<TABLE>
<CAPTION>
                                                                               December 31,
                                                                               ------------
                                                                             1997         1996
                                                                             ----         ----
<S>                                                                      <C>          <C>
                                    ASSETS
                                    ------
CURRENT ASSETS:
Cash and equivalents ..........................................          $  103,254   $  108,321
Receivables:
  Trade accounts receivable (net of allowances of $1,891
   and $2,840) ................................................              89,086       51,122
  Other receivables ...........................................               3,677        3,974
                                                                         ----------   ----------
     Total receivables, net ...................................              92,763       55,096
                                                                         ----------   ----------

Inventories:
  Coal finished goods .........................................               9,287       12,525
  Coal work in process ........................................              12,932        8,744
  Mine supplies ...............................................              18,937       20,093
                                                                         ----------   ----------
     Total inventories ........................................              41,156       41,362

Deferred income taxes (Note 3) ................................               9,583        9,747
Other current assets ..........................................               3,541        3,426
                                                                         ----------   ----------
     Total current assets .....................................             250,297      217,952
                                                                         ----------   ----------

PROPERTY, PLANT AND EQUIPMENT:
  Land and mineral rights .....................................             632,781      627,369
  Prepaid royalties ...........................................              20,173       21,705
  Plant and equipment .........................................             540,566      493,962
                                                                         ----------   ----------
     Total at cost ............................................           1,193,520    1,143,036
  Less - Accumulated depreciation, depletion and amortization .            (365,314)    (324,166)
                                                                         ----------   ----------
     Property, plant and equipment, net .......................             828,206      818,870
                                                                         ----------   ----------

OTHER ASSETS:
  Prepaid pension expense (Note 6) ............................               4,836        7,056
  Deferred financing costs, net ...............................               2,329        1,835
  Other long-term assets ......................................               8,289        4,912
                                                                         ----------   ----------
     Total other assets .......................................              15,454       13,803
                                                                         ----------   ----------

TOTAL ASSETS .................................................           $1,093,957   $1,050,625
                                                                         ==========   ==========
</TABLE>







                See notes to consolidated financial statements.

                                       30

<PAGE>   33




                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                (Amounts in thousands, except per share amount)

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                                    ------------
                                                                                               1997             1996
                                                                                               ----             ----
<S>                                                                                         <C>           <C>

                  LIABILITIES AND SHAREHOLDERS' EQUITY
                  ------------------------------------

CURRENT LIABILITIES:
  Current maturities of long-term debt (Note 4) .......................                      $    68,342  $         -
  Accounts payable - trade ............................................                           81,523       38,895
  Other taxes payable .................................................                           22,527       22,057
  Accrued payroll and related benefits ................................                           20,103       23,807
  Other accrued expenses (Note 6) .....................................                           35,598       48,263
                                                                                             -----------  -----------
       Total current liabilities ......................................                          228,093      133,022

LONG-TERM DEBT (Notes 4 and 5) ........................................                          275,800      344,770
ACCRUED POSTRETIREMENT BENEFIT OBLIGATIONS (Note 7) ...................                          253,700      245,385
ACCRUED PNEUMOCONIOSIS BENEFITS (Note 8) ..............................                           36,156       46,256
ACCRUED MINE CLOSING COSTS (Note 10) ..................................                           55,957       75,663
DEFERRED INCOME TAXES (Note 3) ........................................                           20,527       13,033
OTHER LONG-TERM LIABILITIES:
 Accrued workers' compensation ........................................                           29,459       36,617
 Accrued postemployment benefits ......................................                           14,619       18,095
 Other ................................................................                            1,906        5,178
                                                                                             -----------  -----------

       Total other long-term liabilities ..............................                           45,984       59,890
                                                                                             -----------  -----------

COMMITMENTS AND CONTINGENCIES (Notes 15 and 16) .......................                                -            -
                                                                                             -----------  -----------

       Total liabilities ..............................................                          916,217      918,019
                                                                                             -----------  -----------

SHAREHOLDERS' EQUITY:
  Preferred stock (Note 12) ...........................................                                -            -
  Common stock - $0.01 par value per share - 50,000 shares authorized;
    28,441 shares issued and 28,197 shares outstanding as of
    December 31, 1997 and 28,377 issued and outstanding as of
    December 31, 1996 .................................................                              284          284
  Capital in excess of par value ......................................                           73,120       72,191
  Retained earnings (Note 4) ..........................................                          110,284       60,131
                                                                                             -----------  -----------
                                                                                                 183,688      132,606
  Less cost of common stock in treasury - 244 shares at December 31,
    1997, and no shares at December 31, 1996 ..........................                           (5,948)           -
                                                                                             -----------  -----------
       Total shareholders' equity .....................................                          177,740      132,606
                                                                                             -----------  -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................                      $ 1,093,957  $ 1,050,625
                                                                                             ===========  ===========
</TABLE>


                See notes to consolidated financial statements.



                                       31

<PAGE>   34

                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES



                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Amounts in thousands)

<TABLE>
                                                                              Year Ended December 31,
                                                                              -----------------------
                                                                             1997       1996      1995
                                                                             ----      -----      ----
<S>                                                                       <C>        <C>       <C>
OPERATING ACTIVITIES:
Net earnings (loss) ..............................................         $ 58,639  $ 57,964   ($11,213)
                                                                          ---------  --------   ---------
Adjustments for differences between net earnings (loss) and cash
flows from operating activities:
  Depreciation, depletion and other amortization .................           57,912    60,134     68,576
  Amortization of deferred financing costs .......................              790       838        838
  Postretirement benefits ........................................            8,315   (10,454)     3,318
  Gain on sales of property, plant and equipment .................           (5,066)   (5,062)    (1,462)
  Prepaid pension costs ..........................................            2,220     2,499      2,943
  Pneumoconiosis benefits ........................................          (10,100)   (3,168)   (23,754)
  Postemployment benefits ........................................           (3,476)      811      3,485
  Workers' compensation ..........................................           (7,158)    5,851      8,905
  Mine closing costs .............................................          (17,810)   (6,539)    (9,654)
  Provision for asset impairments and accelerated mine closings ..                -         -    114,662
  Stock appreciation units .......................................           (4,195)  (10,172)     2,492
  Deferred income taxes ..........................................            7,658    13,885    (16,984)
  Other noncash items ............................................           (5,143)   (4,892)    (1,489)
  Changes in working capital components:
    (Increase) decrease in receivables ...........................          (37,717)   16,660     15,502
    Decrease in inventories ......................................               71     8,584      7,809
    (Increase) decrease in other current assets ..................             (117)     (441)     2,353
    Increase (decrease) in accounts payable - trade ..............           42,628    (7,292)    (7,365)
    Increase (decrease) in accrued expenses and other current
     liabilities .................................................           (7,690)   12,668      1,323
                                                                          ---------  --------  ---------
      (Increase) decrease in working capital .....................           (2,825)   30,179     19,622
                                                                          ---------  --------  ---------

  Total adjustments to net earnings (loss) .......................           21,122    73,910    171,498
                                                                          ---------  --------  ---------

 Net cash provided by operating activities .......................           79,761   131,874    160,285
                                                                          ---------  --------  ---------

INVESTING ACTIVITIES:
 Additions to property, plant and equipment ......................          (74,426)  (31,427)   (56,334)
 Cash paid for sale of Indiana assets ............................           (4,000)   (7,000)         -
 Proceeds from sales of property, plant and equipment ............            7,745     7,890      4,545
                                                                          ---------  --------  ---------
 Net cash used in investing activities ...........................          (70,681)  (30,537)   (51,789)
                                                                          ---------  --------  ---------

FINANCING ACTIVITIES:
 Proceeds from debt refinancing ..................................          145,800         -          -
 Net repayments of long-term debt ................................         (146,428)        -   (105,288)
 Proceeds from common stock issued under stock option plan .......              929       247          -
 Payment of dividends ............................................           (8,484)   (6,382)    (5,672)
 Purchase of treasury stock ......................................           (5,998)        -          -
 Sale of treasury stock ..........................................               34         -          -
                                                                           ---------  --------  ---------
   Net cash used in financing activities .........................          (14,147)   (6,135)  (110,960)
                                                                          ---------  --------  ---------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ..................           (5,067)   95,202     (2,464)

 CASH AND EQUIVALENTS, BEGINNING .................................          108,321    13,119     15,583
                                                                          ---------  --------  ---------
 CASH AND EQUIVALENTS, ENDING ....................................         $103,254  $108,321    $13,119
                                                                          =========  ========  =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid (received) during period for:
      Interest, net of amount capitalized ........................          $16,085  $ 22,804    $27,372
     Income taxes, net of refunds ................................            5,231    (2,997)    10,549
</TABLE>




                See notes to consolidated financial statements.

                                       32

<PAGE>   35




                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                (Amounts in thousands, except per share amounts)




<TABLE>
<CAPTION>
                                                                                                                          Total
                                                                                      Capital in                          Share-
                                                                              Common   Excess of   Retained  Treasury     holders'
                                                                               Stock   Par Value   Earnings   Stock       Equity
                                                                              ------  ----------  ---------  --------   -----------
<S>                                                                           <C>     <C>        <C>         <C>        <C>
BALANCE, JANUARY 1, 1995....................................................   $ 283   $ 71,945   $ 26,143   $     -     $  98,371

   Net loss ................................................................       -          -    (11,213)        -       (11,213)
   Cash dividends declared ($.20 per share) ................................       -          -     (5,672)        -        (5,672)
                                                                               -----   --------   --------   -------     ---------

BALANCE, DECEMBER 31, 1995 .................................................     283     71,945      9,258         -        81,486

  Issuance of 22 shares of common stock under stock option plan (Note 9) ...       1        246          -         -           247
  Net income ...............................................................       -          -     57,964         -        57,964
  Cash dividends declared ($.25 per share) .................................       -          -     (7,091)        -        (7,091)
                                                                               -----   --------   --------   -------     ---------

BALANCE, DECEMBER 31, 1996 .................................................     284     72,191     60,131         -       132,606

   Issuance of 66 shares of common stock under stock option plan (Note 9) ..       -        929          -         -           929
   Purchase of 246 shares of common stock ..................................       -          -          -    (5,998)       (5,998)
   Issuance of 2 shares of treasury stock at less than cost ................       -          -        (16)       50            34
   Net income ..............................................................       -          -     58,639         -        58,639
   Cash dividends declared ($.30 per share) ................................       -          -     (8,470)        -        (8,470)
                                                                               -----   --------   --------   -------     ---------

BALANCE, DECEMBER 31, 1997 .................................................   $ 284   $ 73,120   $110,284   ($5,948)    $ 177,740
                                                                               =====   ========   ========   =======     =========
</TABLE>





                See notes to consolidated financial statements.


                                       33

<PAGE>   36




                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

           (Amounts in thousands, except share and per share amounts)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation - The consolidated financial statements
include the accounts of Zeigler Coal Holding Company and Subsidiaries (Zeigler
or the "Company"), all of which are wholly-owned.  All material intercompany
transactions and accounts have been eliminated in consolidation.

     Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
balance sheet date, and the reported amounts of revenues and expenses during
the year.  Actual results could differ from those estimates.

     Cash and Equivalents - Cash and equivalents include cash on deposit and
highly liquid investments with a maturity of three months or less.

     Inventories - Coal inventory is valued using the average cost method and
is stated at the lower of cost or market.  Coal inventory costs include labor,
equipment costs and operating overhead.  Coal work in process includes
partially uncovered coal and unprocessed coal.  Mine supply inventory is valued
using the average cost method and is stated at the lower of cost or market.

     Property, Plant and Equipment - Additions and betterments are capitalized
at cost.  Maintenance and repair costs are expensed as incurred.  Depreciation
of plant and equipment is computed principally by the straight-line method over
the expected useful lives of the assets.

     Mine development costs and the net amount of associated interest cost are
capitalized.  Exploration costs are expensed as incurred.  Depletion of mineral
rights and capitalized mine development costs is provided on the basis of
tonnage mined in relation to total estimated recoverable tonnage.

     Zeigler pays royalties to certain landowners and holders of mineral
interests for the rights to perform certain mining activities.  Amounts
advanced to landowners, which are recoupable against future production, are
capitalized; as the coal is mined, these prepayments are offset against earned
royalties and included in the cost of coal sales.

     Deferred Financing Costs - The costs of issuing and restructuring
long-term debt are capitalized and amortized using the effective interest
method over the term of the related debt.

     Income Taxes - Zeigler accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes.  Under SFAS No. 109, deferred taxes are established for the
temporary differences between the financial reporting basis and the tax basis
of Zeigler's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.



                                      34

<PAGE>   37




                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Postretirement Benefits Other Than Pensions - As prescribed by SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
Zeigler accrues, based on annual independent actuarial valuations, for
the expected costs of providing postretirement benefits other than pensions,
primarily medical benefits, during an employee's actual working career until
vested.

     Pneumoconiosis Benefits - Certain Zeigler subsidiaries are liable under
the Federal Black Lung Benefits Act of 1972, as amended, to pay pneumoconiosis
(black lung) benefits to eligible employees, former employees and their
dependents for claims filed after June 30, 1973.  These subsidiaries are also
liable under certain state statutes for black lung claims.  Zeigler acts as
self-insurer for most federal and state black lung benefits.  The remaining
portion of black lung claims are covered by state insurance funds into which
Zeigler pays premiums.

     The accrual for self-insured pneumoconiosis benefits is adjusted to equal
the present value of future claim payments, determined as of the beginning of
the year, based on outside actuarial valuations performed annually.

     Postemployment Benefits - Zeigler provides certain postemployment
benefits, primarily long-term disability and medical benefits, to former and
inactive employees and their dependents during the time period following
employment but before retirement.  The Company accrues the discounted present
value of expected future benefits, determined as of the beginning of the year,
based on annual outside actuarial valuations.

     Reclamation and Mine Closing Costs - Zeigler provides for the estimated
costs of future mine closings over the expected lives of active mines.  Those
costs relate to sealing portals at deep mines and to reclaiming the final pit
and support acreage at surface mines.  Other costs common to both types of
mining are related to removing or covering refuse piles and slurry (or
settling) ponds and dismantling preparation plants and other facilities.  The
regular provision for future mine closing costs is calculated under the
units-of-production method based on a per ton charge determined by dividing
estimated unrecorded closing costs by estimated remaining recoverable tons.
These estimates are updated annually and the accrual rate is adjusted on a
prospective basis accordingly.  The cost of restoring land and water resources
affected by normal ongoing surface mining operations is expensed as incurred.

     Asset Impairments and Accelerated Mine Closing Accruals - In certain
situations, expected mine lives are shortened because of changes to planned
operations.  When that occurs, and it is determined that the mine's underlying
costs are not recoverable in the future, reclamation and mine closing
obligations are accelerated and the mine closing accrual is increased
accordingly.  Also, to the extent that it is determined that asset carrying
values will not be recoverable during a shorter mine life, a provision for such
impairment is recognized. The Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of in
1995.  SFAS No. 121 expanded the Company's criteria for loss recognition, and
provides methods for both determining when an impairment has occurred and for
measuring the amount of the impairment.  SFAS No. 121 requires that projected
future cash flows from use and disposition of all the Company's assets be
compared with the carrying amounts of those assets.  When the sum of projected
cash flows is less than the carrying amount, impairment losses are recognized.

     Revenue Recognition - Coal sales are recognized at contract prices at the
time title transfers to the customer. Coal sales are reduced and an allowance
is established for pricing disputes.  Revenue at the import/export terminals is
recognized at the time of throughput.

        Energy Trading Revenues and Costs - Energy trading revenues and costs
represent revenues and costs derived from the trading of power and gas forward
and future contracts and options. These forward and future contracts and
options are marked-to-market with gains and losses recognized currently.
Revenue and cost on forward and future contracts is recognized on settlement
date.




                                      35

<PAGE>   38

                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Other Revenues, Costs and Expenses - Other revenues represent amounts
primarily related to the terminals, coal leases to third parties, farming,
timber, gains on sales of surplus assets, and oil and gas royalties.  Costs and
expenses related to other revenues and those related to Zeigler's clean coal
plant are included in other costs and expenses.

     Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation,
which required adoption in 1996.  The new standard defines a fair value method
of accounting for stock options and similar equity instruments.  Pursuant to
the new standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions.  Companies
are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, but are required to disclose in a note to the financial
statements pro forma net income and earnings per share as if the Company had
applied the new method of accounting.  The accounting requirements of the new
method are effective for all employee awards granted after the beginning of the
fiscal year of adoption.  The Company has elected to continue to account for
such transactions under APB No. 25.

     Net Earnings Per Common Share - The Company adopted  SFAS No. 128,
Earnings Per Share, beginning with the Company's fourth quarter of 1997.  All
prior period net earnings per common share data have been restated to conform
to the provisions of this statement.  Basic net earnings per common share is
computed using the weighted average number of shares outstanding.  Diluted net
earnings per common share is computed using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding options to purchase common stock.  Incremental shares of 385,000
and 121,000 in 1997 and 1996, respectively, were used in the calculation of
diluted earnings per common share.  Options to purchase 334,000 and 809,000
shares of common stock in 1997 and 1996, respectively, were not included in the
computation of diluted earnings per common share because the option exercise
price was greater than the average market price of the common stock.  All
options to purchase common stock were excluded in the 1995 computation of
diluted earnings per common share since the options were antidilutive.

     Reclassifications - Certain amounts in the 1996 and 1995 financial
statements and notes have been reclassified to conform with the 1997
presentation.


2.  DESCRIPTION OF BUSINESS

     Zeigler is engaged principally in the mining of coal for sale primarily to
electric utilities in the United States.  In addition, during 1997, the Company
began power and gas trading through its new energy trading and marketing
subsidiary, EnerZ Corporation.

3.  INCOME TAXES

     Income tax expense (benefit) is comprised of the following:

                                  Year Ended December 31,
                                  -----------------------
                                 1997      1996      1995
                                -------  --------  --------
    Current:
       Federal ..............  $ 2,228  ($2,179)   $ 10,521
       State ................      462     (408)      1,979
    Deferred:
       Federal ..............    6,701    12,151    (14,862)
       State ................      957     1,736     (2,122)
                               -------  --------   --------
           Total ............  $10,348  $ 11,300    ($4,484)
                               =======  ========   ========






                                      36

<PAGE>   39
                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



     The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate of 35% to earnings before income
taxes due to the following:


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                             -----------------------
                                                                            1997       1996     1995
                                                                            ----       ----     ----
<S>                                                                       <C>       <C>       <C>
    Computed tax at federal statutory rate .......................        $24,145   $24,246  ($5,494)
    State tax - net of federal benefits ..........................          2,242     2,162   (4,758)
    Percentage depletion .........................................         (8,893)   (8,164) (10,469)
    Change in valuation allowance ................................        (10,542)   (8,889)  14,113
    Other - net ..................................................          3,396     1,945    2,124
                                                                         --------  --------  -------
    Income tax expense (benefit) provided ........................        $10,348   $11,300  ($4,484)
                                                                         ========  ========   ======

</TABLE>

    The components of the net deferred tax liability are as follows:


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                     ------------
                                                                                    1997       1996
                                                                                    ----       ----
<S>                                                                           <C>         <C>
 Deferred tax liabilities related to:
   Property and equipment ..............................................         $143,366   $127,798
   Land and mineral rights .............................................           32,659     31,666
   Other ...............................................................            8,772     11,592
                                                                                ---------   --------
     Total deferred tax liability ......................................          184,797    171,056
                                                                                ---------   --------
 Deferred tax assets related to:
   Accrued mine closing costs ..........................................           22,383     23,730
   Accrued pneumoconiosis benefits .....................................           14,462     18,344
   Accrued workers' compensation costs .................................           11,784     14,647
   Accrued postretirement benefits .....................................          101,480     98,154
   Other ...............................................................           20,727     21,812
   Alternative minimum tax credit carryforwards ........................           33,811     32,419
                                                                                ---------   --------

     Total deferred tax asset before valuation allowance ...............          204,647    209,106
     Less - Valuation allowance ........................................          (30,794)   (41,336)
                                                                                ---------   --------
     Total deferred tax asset ..........................................          173,853    167,770
                                                                                ---------   --------
 Net deferred tax liability ............................................         ($10,944)   ($3,286)
                                                                                =========   ========

 Shown as:
     Current deferred tax asset ........................................          $ 9,583     $9,747
     Noncurrent deferred tax liability .................................          (20,527)   (13,033)
</TABLE>



     Zeigler also has an AMT credit carryforward of $33,811 and $32,419 at
December 31, 1997 and 1996, respectively, available to be used in future
periods.  Although management believes that it is unlikely to realize all of
its AMT credit carryforward under existing law and company structure, AMT
credit carryforward is recognized to reduce the deferred tax liability from the
amount of regular tax on temporary differences to the amount of tentative
minimum tax on AMT temporary differences.



                                      37
<PAGE>   40



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


4.  LONG-TERM DEBT

    Long-term debt consists of the following:



<TABLE>


                                                                                           December 31,
                                                                                         1997          1996
                                                                                         ----          ----

<S>                                                                                   <C>            <C>
    8.61% senior secured notes ................................................        $198,342       $198,970
    Industrial revenue bonds ..................................................         145,800        145,800
                                                                                       --------       --------
            Total .............................................................         344,142        344,770
    Less current maturities ...................................................          68,342              -
                                                                                       --------       --------
                           Long-term debt .....................................        $275,800       $344,770
                                                                                       ========       ========
</TABLE>


     8.61% Senior Secured Notes - The 8.61% Senior Secured Notes are payable to
a group of insurance companies and other financial institutions under Note
Purchase Agreements dated as of November 16, 1992.  Interest on the notes is
payable semiannually.  Annual principal payments begin on November 15, 1998 at
the rate of 20% of the original outstanding amount of $400,000.  The notes
require Zeigler to offer to make mandatory prepayments in the event Zeigler
generates excess cash flow, as defined in the Note Purchase Agreements, or
makes asset sales above specified levels.  The amount of excess cash flow that
must be offered as a prepayment to the Noteholders is based upon the percentage
of debt due to the Noteholders divided by the total indebtedness to both the
Noteholders and the lenders under the Credit Agreement described in the fourth
following paragraph.  The Noteholders were offered a prepayment of $25,050 in
1997 based on free cash flow, as defined, for 1996, of which $628 of the
prepayments were accepted by the Noteholders.

     The notes are collateralized by a first mortgage on substantially all of
Zeigler's assets.  The collateral is shared pari passu with the lenders
involved with the Credit Agreement. The notes may be prepaid at Zeigler's
discretion; however, the Noteholders are entitled to receive a prepayment
premium that protects the yield to the Noteholders over the remainder of the
term of notes.  In effect, this yield maintenance premium is the net present
value of the reduced yield to the Noteholders over the remaining scheduled term
of the Notes based upon an assumed reinvestment rate of 50 basis points (0.5%)
over the then available yield for U.S. Treasury securities with a maturity
equal to that of the Senior Secured Notes.  No yield maintenance premium is
payable on mandatory prepayments out of excess cash flow.

     On January 5, 1998, Zeigler prepaid $198,342 to the Noteholders, using
$68,342 of cash and borrowing $130,000 under a new Credit Agreement's revolving
credit  facility (see below).  A related yield maintenance premium of $7,604
was also paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8,849 ($6,637 net
of taxes) in the first quarter of 1998, consisting of the yield maintenance
premium and the write-off of deferred financing costs related to the early
extinguishment of debt.

     Industrial Revenue Bonds - In August 1997, the Company completed the
refunding of its industrial revenue bonds.  The industrial revenue bonds are
floating rate obligations issued by the Peninsula Ports Authority of Virginia
($115,000) and Charleston County, South Carolina ($30,800).  Both obligations
are backed by letters of credit issued under the Company's revolving credit
facility.  These refundings served to extend the maturities of the industrial
revenue bonds and to release Shell Oil Company from its guarantees of the
underlying obligations.  The principal of the obligation by the Peninsula Ports
Authority of Virginia is due in one lump-sum payment on May 1, 2022, and the
principal of the obligation by Charleston County, South Carolina is due in one
lump-sum payment on August 1, 2028.  Interest on these obligations is payable
monthly.  The weighted average interest rate for these borrowings was 3.66% and
3.38% as of December 31, 1997 and 1996, respectively.


                                      38

<PAGE>   41



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Credit Agreement - On October 19, 1994, Zeigler amended and restated its
Credit Agreement dated November 16, 1992, as previously amended and restated on
March 15, 1994.  The Credit Agreement provides for a $200,000 revolving credit
facility, with a three year term, and can be used for both loans and letters of
credit. As of December 31, 1997, Zeigler had used $186,107 out of the total
$200,000 revolving credit facility for outstanding letters of credit.  The
provisions of the Credit Agreement require a commitment fee to be paid on the
unused portion of the revolving credit facility.  Interest is paid based on
floating rates which fluctuate based on the prime rate, or the London Interbank
Offer Rate (LIBOR) plus various increments.  The interest rate was 6.42% at
December 31, 1997.  The Credit Agreement is collateralized by a first mortgage
on substantially all of Zeigler's assets.  The collateral is shared pari passu
with the holders of the Senior Secured Notes.

     In April 1997, the Company executed a new Credit Agreement (the "New
Credit Agreement") with certain financial institutions, which provides for
senior unsecured revolving credit and letter of credit facilities aggregating
$700,000.  Interest on the revolving credit facility is paid in arrears based
on rates which fluctuate based on the prime rate or a certain Interbank Offer
Rate, as the Company may elect.  Amounts outstanding under the New Credit
Agreement are not secured.  The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance.  The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default.  The New Credit Agreement, which replaces the
Amended and Restated Credit Agreement dated October 19, 1994, became effective
on January 5, 1998, in conjunction with the payment of the Company's
outstanding Senior Secured Notes.


     Maturities - At December 31, 1997, aggregate scheduled maturities of all
long-term debt for each year through 2002 are as follows:


                      1998 ...................  $ 68,342
                      1999 ...................         -
                      2000 ...................         -
                      2001 ...................         -
                      2002 ...................         -
                      Thereafter..............   275,800
                                                --------
                      Total ..................  $344,142
                                                ========



5.  FINANCIAL INSTRUMENTS

     The fair value of Zeigler's long-term debt has been calculated based on
quoted market prices for similar issues or current rates offered to Zeigler for
debt of the remaining maturities.  Long-term debt has an estimated fair value
of $351,746 and $349,451 compared to the carrying amount of $344,142 and
$344,770 at December 31, 1997 and 1996, respectively.  The carrying amount of
all other financial instruments, including cash and equivalents, accounts
receivable and accounts payable approximates fair value due to the short-term
nature of these instruments.

     Through its energy trading subsidiary, the Company began entering into
power and gas forward contracts and options for trading purposes in 1997.
These forward contracts and options were marked-to-market with any gains and
losses recognized currently.  At December 31, 1997, open net contract and
option positions were not material and did not represent significant credit
related exposure.




                                      39
<PAGE>   42


                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.  PENSION AND SAVINGS PLANS

     Salaried Pension Plan - Zeigler has a non-contributory pension plan
covering substantially all employees other than those who are members of the
United Mine Workers of America ("UMWA").  The plan is a cash balance retirement
plan which provides benefits based upon the employee's length of credited
service and compensation during each year of employment.  Zeigler's funding
policy is to make, as a minimum contribution, the equivalent of the minimum
payment required by the Employee Retirement Income Security Act of 1974.  The
Company contributed $123 in 1997 to the pension plan.  There were no minimum
contributions required in 1996 and 1995.

     The pension cost components for the year ended December 31, are as
follows:


<TABLE>
<CAPTION>

                                                                      1997         1996       1995
                                                                      ----         ----       ----
<S>                                                                <C>           <C>         <C>
Service cost (for benefits earned during the
  year).........................................................    $  3,186      $  3,543   $  3,566
Interest cost on projected benefit
  obligations...................................................       7,285         7,321      7,636
Actual return on plan assets....................................     (11,709)      (14,043)   (20,889)
Net amortization and deferral...................................       3,581         5,678     12,630
                                                                    --------      --------   --------
    Total.......................................................    $  2,343      $  2,499   $  2,943
                                                                    ========      ========   ========
</TABLE>

A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:


<TABLE>
<CAPTION>
                                                                                              1997              1996
                                                                                              ----              ----
<S>                                                                                         <C>               <C>
Plan assets at fair value .........................................................         $108,081          $105,897
                                                                                            --------          --------
Actuarial present value of plan benefits:
    Vested ........................................................................           89,679            84,305
    Nonvested .....................................................................            3,932             3,390
                                                                                            --------          --------
    Accumulated benefit obligation ................................................           93,611            87,695
    Additional obligation for future salary increases .............................            6,497             7,190
                                                                                            --------          --------
         Projected benefit obligation .............................................          100,108            94,885
                                                                                            --------          --------

Excess of plan assets over projected
    benefit obligation ............................................................            7,973            11,012
Unrecognized net transition asset ..................................................            (480)             (548)
Unrecognized prior service cost ....................................................             242               264
Unrecognized net gain ..............................................................          (2,899)           (3,672)
                                                                                            --------          --------
Prepaid pension expense ............................................................        $  4,836          $  7,056
                                                                                            ========          ========
</TABLE>




     The unrecognized net transition asset, representing the excess of the fair
value of plan assets over the projected benefit obligation at the date of
adoption, is being amortized over the average expected future service periods
of employees.








                                      40
<PAGE>   43



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Assumptions used in developing the projected benefit obligation as of
December 31, are as follows:


                                                        1997   1996
                                                       ------ ------
     Discount rate ...................................  7.25%  7.75%
     Rate of compensation increase ...................  4.00%  4.00%
     Rate of return on plan assets ...................  9.50%  9.50%


     Plan assets consist principally of common stocks and U.S. government and
corporate obligations.

     UMWA Pension Plan - Old Ben Coal Company ("Old Ben"), a wholly-owned
subsidiary, and Marrowbone Development Company, a division of Mountaineer Coal
Development Company, an indirect subsidiary, are required under their
respective contracts with the UMWA to pay amounts based on hours worked to the
UMWA Pension Plan and Trust, a multi-employer pension plan covering all
employees who are members of the UMWA.  The accompanying consolidated
statements of operations include $1,578, $2,102, and $2,778, of expense in
1997, 1996, and 1995, respectively, applicable to the plan.  The National
Bituminous Coal Wage Agreement of 1998 ("NBCWA") authorizes the Bituminous Coal
Operators Association to increase the rate of contributions from employers to
assure payment of benefits.  The union contract requires all currently
participating employers to guarantee benefits jointly, but not severally, with
all other currently participating employers.  It is not practical to determine
each subsidiaries' allocable share of the plan's net assets and accumulated
benefits.

     401(k) Plans - Zeigler and certain subsidiaries sponsor savings and
long-term investment plans for substantially all employees other than employees
covered by the contract with the UMWA.  One of the plans will match 50% of the
voluntary contributions up to a maximum contribution of 3% of a participant's
salary with an additional matching contribution subject to certain performance
criteria.  The expense under these plans was $1,276, $1,391, and $1,036, in
1997, 1996 and 1995, respectively.

     Stock Appreciation Units - Zeigler has a long-term incentive plan which
entitles certain officers and key employees to receive a cash award for an
amount equal to the excess of the fair market value of Zeigler's common stock
on the date the unit matures over the base price at the date of grant of the
award.  The plan permits an aggregate of 1,635,200 such stock appreciation
units of which 73,600 and 284,320 were outstanding at December 31, 1997 and
1996, respectively. The vesting period ranges from three to five years. During
1997, 210,080 stock appreciation units matured.  Costs and expenses include
approximately $141, $2,917, and $3,178, of charges in connection with this plan
for 1997, 1996 and 1995, respectively. Outstanding stock appreciation units
with maturities less than one year are included as a component of other accrued
expenses.

7.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     UMWA Combined Benefit Fund - Zeigler provides healthcare benefits to
eligible retirees and their dependents.  Retirees who were members of the UMWA
and who retired on or before December 31, 1975 received these benefits from
multi-employer benefit plans.  Old Ben contributed to these funds based on the
number of its retirees in one of the funds and based on hours worked by current
UMWA members for the other fund.  Current and projected operating deficits of
these trusts led to the passage of the Coal Industry Retiree Health Benefit Act
of 1992 (the "Act").  The Act established a new multi-employer benefit trust
that will provide healthcare and life insurance benefits to all beneficiaries
of the earlier trusts who were receiving benefits as of July 20, 1992. The Act
provides for the assignment of beneficiaries to their former employers and any
unassigned beneficiaries to employers based on a formula.  The expense under
these plans, which is recognized as contributions are made, amounted to $3,431,
$2,968, and $3,527, in 1997, 1996 and 1995, respectively.  Based upon an
independent actuarial valuation, Zeigler estimates the amount of its obligation
under the new plan to be approximately $21,637 as of December 31, 1997.





                                      41
<PAGE>   44


                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Zeigler Benefit Plans - Net postretirement healthcare cost for the year
ended December 31, includes the following:


<TABLE>
<CAPTION>
                                                                           1997        1996       1995
                                                                           ----        ----       ----
    <S>                                                                 <C>         <C>        <C>
     Service cost .................................................      $ 4,270     $ 4,562    $ 5,027
     Interest cost ................................................       18,436      17,123     17,842
     Amortization of prior service cost............................       (1,176)     (4,608)    (9,208)
     Amortization of unrecognized gain.............................         (126)       (573)      (327)
                                                                         -------     -------    -------
        Net periodic postretirement benefit cost ..................      $21,404     $16,504    $13,334
                                                                         =======     =======    =======
</TABLE>

     A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:


<TABLE>
<CAPTION>
                                                                                                        1997          1996
                                                                                                        ----          ----
     <S>                                                                                            <C>           <C>
      Accumulated postretirement benefit obligation:
         Retirees ........................................................................            $146,388      $135,044
         Fully eligible active employees .................................................              61,974        53,477
         Other active employees ..........................................................              61,899        52,760
                                                                                                      --------      --------
            Total ........................................................................             270,261       241,281
      Unrecognized net (loss) gain .......................................................             (17,379)        4,909
      Unrecognized prior service cost (benefit) ..........................................                 818          (805)
                                                                                                      --------      --------
      Accumulated postretirement benefit obligation ......................................            $253,700      $245,385
                                                                                                      ========      ========
</TABLE>


     In 1996, as a result of the re-employment or termination prior to vesting
of certain Midwestern employees, the Company recorded a $16,295 gain related to
the curtailment of its postretirement benefit plan.

     The discount rate used to determine the accumulated postretirement benefit
obligation was 7.25% and 7.5% at December 31, 1997 and January 1, 1997,
respectively.  The assumed healthcare cost trend rates used in determining the
net expense for 1997 are shown in the following table.  Healthcare cost trends
were assumed to decline from 1997 levels to an ultimate ongoing level over five
years as follows:


<TABLE>
<CAPTION>
                                           1997  Ultimate
                                           Rate    Rate
                                           ----  --------
        <S>                               <C>      <C>
         Pre-65 ........................   8.0%     5.0%
         Post-65 .......................   6.5%     5.0%
         Medicare offset ...............   6.0%     5.0%
</TABLE>



     The expense and liability estimates can fluctuate by significant amounts
based upon the assumptions used by the actuaries.  If the healthcare cost trend
rates were increased by one percent in each year, the accumulated postretirement
benefit obligation would be 14 percent higher as of December 31, 1997.  The
effect of this change on the 1997 expense accrual would be an increase of 14
percent.




                                      42
<PAGE>   45





                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8.  PNEUMOCONIOSIS BENEFITS

     The actuarially determined liability for pneumoconiosis (black lung)
benefits is based on a 6% discount rate and various other assumptions including
incidence of claims, benefit escalation, terminations and life expectancy.  The
annual black lung expense is comprised of the net change in the beginning
accrual balance, a charge for interest on the unfunded accrual balance plus the
premiums paid to the state insurance funds.  The January 1, 1997 and January 1,
1995 actuarial studies reduced the estimated pneumoconiosis liability by $8,244
and $23,299, respectively, as compared to the previous study.  The lower
estimates resulted primarily from favorable claims experience and reduced
projected future claims.

     The cost of black lung benefits charged to operations for Zeigler and its
subsidiaries, excluding the changes in estimated liability mentioned above, was
$2,280, $157, and $2,967 in 1997, 1996 and 1995, respectively.


9.  STOCK OPTION PLAN


     In February 1994, Zeigler's Board of Directors and shareholders adopted a
Stock Option Plan (the "Option Plan").  A total of 2,560,000 shares of Common
Stock are reserved for issuance upon exercise of options granted under the
Option Plan.  The Option Plan is administered by the Compensation Committee of
the Board of Directors which determines the terms of the options granted
including the exercise price, number of shares subject to the option and
exercisability.

     The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan.  The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation.  Accordingly, no compensation cost has been
recognized for the stock option plan.

     The following summarizes the stock option transactions under the Option
Plan for the three years ended December 31, 1997:




<TABLE>
<CAPTION>
                                                                    Number of                      Weighted Average
                                                                     Shares      Option Prices      Exercise Price
                                                                    ---------   --------------     ----------------

   Options outstanding at
<S>                                                               <C>           <C>                   <C>
    December 31, 1994 .............................                 1,096,800    $11.13 to 16.05        $14.27
      Granted .....................................                    19,000     10.75 to 12.88         12.54
      Canceled ....................................                   (29,800)    11.13 to 16.05         15.22
                                                                    ---------

   Options outstanding at
    December 31, 1995 .............................                 1,086,000     10.75 to 16.05         14.22
      Granted .....................................                   688,000     14.00 to 20.00         15.86
      Exercised ...................................                   (21,530)    11.13 to 16.05         11.42
      Canceled ....................................                  (153,320)    11.13 to 16.05         14.50
                                                                    ---------

   Options outstanding at
    December 31, 1996 .............................                 1,599,150     10.75 to 20.00         14.93
      Granted .....................................                   434,000     23.38 to 26.25         25.52
      Exercised ...................................                   (65,710)    10.75 to 16.05         14.68
      Canceled ....................................                  (210,280)    10.75 to 26.25         20.19
                                                                    ---------

   Options outstanding at
    December 31, 1997 ............................                  1,757,160     11.13 to 26.25         16.93
                                                                    =========
</TABLE>




                                      43

<PAGE>   46


                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     The outstanding stock options at December 31, 1997, 1996 and 1995 have a
weighted average remaining contractual life of 7.64, 8.28, and 8.51 years,
respectively.  The number of stock option shares exercisable at December 31,
1997, 1996, and 1995 were 717,464, 362,710, and 213,400, respectively.

     Generally, stock options are granted at prices which are equal to the
market value of the stock on the date of grant, have a maximum term of ten
years, and vest in equal annual increments over five years.  The weighted
average fair value at date of grant for options granted during 1997, 1996, and
1995 was $10.66, $5.76, and $3.96 per option, respectively.  The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:


<TABLE>
                                          1997    1996    1995
                                         -----   -----   -----
                <S>                      <C>     <C>     <C>
                Expected life (years)         7       7       7

                Risk-free interest rate   5.52%   6.26%   6.18%

                Volatility               34.98%  29.90%  29.90%

                Dividend yield            1.18%   1.94%   2.52%
</TABLE>



     As previously discussed, the Company accounts for the Option Plan in
accordance with APB No. 25 under which no compensation expense has been
recognized for stock option awards.  Had compensation cost for the Company's
stock option plan been determined on the fair value at the grant date for
awards for the three year period ended December 31, 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts indicated
below:


<TABLE>
                                                  1997     1996      1995
                                                  ----     ----      ----
<S>                                           <C>      <C>      <C>
      Net earnings (loss) - as reported .....  $58,639  $57,964  ($11,213)

      Net earnings (loss) - pro forma .......   57,590   57,611   (11,217)

      Earnings (loss) per share - as reported
       Basic ................................  $  2.07  $  2.04     ($.40)
       Diluted ..............................     2.05     2.04      (.40)

      Earnings (loss) per share - pro forma
       Basic ................................  $  2.04  $  2.03     ($.40)
       Diluted ..............................     2.01     2.02      (.40)
</TABLE>



     Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.



                                      44

<PAGE>   47






                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10.  ASSET IMPAIRMENTS AND ACCELERATED MINE CLOSING COSTS

     The following summarizes the components of asset impairments and
accelerated mine closing costs:

<TABLE>
                                                                                Year Ended December 31,
                                                                                -----------------------
                                                                              1997        1996        1995
                                                                              ----        ----        ----
<S>                                                                       <C>          <C>         <C>
  Regular accruals for future mine closings ........                        $6,403       $6,875     $  9,440
                                                                            ======       ======     ========
  Impairments and accelerated accruals:
       Write-down of assets .............................                   $    -       $    -     $ 84,513
       End of mine closing and reclamation liabilities ..                        -            -       28,024
       Other liabilities ................................                        -            -        2,125
                                                                            ------       ------     --------
  Total impairments and accelerated accruals .......                        $    -       $    -     $114,662
                                                                            ======       ======     ========
</TABLE>

     In July 1995, the Company closed Old Ben Mine #1 in Indiana after
termination of its supply contract with Southern Indiana Gas and Electric
Company.  Accordingly, the carrying value of the mine and other related assets
that supported the contract were reduced to their estimated net realizable
values, which resulted in asset write-downs of $15,762.  In addition, a
provision for accelerated mine closing costs of $16,500 was recorded, based on
the amount of estimated closing costs that would have been expensed during the
full term of the contract.

     In the fourth quarter of 1995, the Company recorded asset impairments and
accelerated accruals totaling $82,400 in connection with the idling, closing
and projected closing of certain mines.  Of that amount, $49,100 relates to Old
Ben's operations in southern Illinois.  Old Ben idled one mine in Randolph
County, Illinois  on  December 31, 1995, and  made plans  to  close  two  other
mines in  Franklin County, Illinois later in 1996, mainly due to a sharp
reduction in demand for the Illinois Basin's high-sulfur coal.  Management did
not expect the high-sulfur market to improve significantly in the foreseeable
future.  The remaining $33,300 fourth quarter charge was associated with the
indefinite idling of Wolf Creek's underground mine in eastern Kentucky on
October 1, 1995.  That amount consists of asset write-downs totaling $26,000
and increased reclamation liabilities of $7,300.  Operations were suspended at
the mine chiefly due to the new sourcing flexibility negotiated in the amended
contract with Carolina Power & Light Company which allows the Company to supply
the contract with coal purchased from lower-cost producers.  The ongoing high
costs at the Wolf Creek mine were mainly attributable to unfavorable geology
and declining productivity.

     11.  SALE OF INDIANA ASSETS

     On February 12, 1996, the Company closed the sale of the majority of its
assets in Indiana to Kindill Mining, Inc. ("Kindill").  These assets had a
combined book value of $13,400 and included Old Ben Mine #1 and Old Ben Mine
#2, along with various other coal properties and interests.  The Company
also agreed to make cash payments to Kindill of $7,000 in 1996 and $4,000 in
1997.  In exchange, Kindill assumed the associated reclamation liabilities,
estimated at approximately $23,400.  This sale was completed on April 30, 1996,
after Kindill secured the required mining permits. The sale of these assets did
not have a material effect on current income.



                                      45

<PAGE>   48






                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

12.  PREFERRED STOCK

     Zeigler is authorized to issue 1,000,000 shares of preferred stock, $0.01
par value, with such issuance to be in one or more classes or series.  The
Board of Directors is authorized to determine the designations, preferences,
qualifications, limitations and restrictions of any class or series with
respect to, among other things, the rate and nature of dividends, the price and
terms, the amount payable in the event of liquidation, the terms and conditions
for conversion or exchange into any other class or series of the stock or other
securities and voting rights.

13.  SIGNIFICANT CUSTOMERS

     Coal sales include transactions involving both produced and purchased
coal.  Two customers accounted for 29% and 16% of coal sales in 1997, 18% and
14% of coal sales in 1996,  and 18% and 13% of coal sales in 1995.

14.  RELATED PARTY TRANSACTIONS

     Shell Oil Company, a former indirect shareholder, provides guarantees for
certain letters of credit and surety bonds of Zeigler.  Zeigler reimburses
Shell for its costs in providing these guarantees.

15.  COMMITMENTS AND CONTINGENCIES (Also see Note 16 - Legal Proceedings)

     Zeigler and its subsidiaries have operating lease commitments expiring at
various dates, primarily for equipment.  Minimum rental obligations under these
leases at December 31, 1997 are summarized by fiscal year as follows:


<TABLE>
                       <S>                    <C>
                        1998.................  $5,095
                        1999.................   1,172
                        2000.................     623
                        2001.................     284
                        2002.................      20
                        Thereafter...........       -
                                               ------
                        Total ...............  $7,194
                                               ======
</TABLE>


     Rental expense relating to operating leases amounted to $7,626, $7,834,
and $9,733 in 1997, 1996 and 1995, respectively.  As of December 31, 1997,
Zeigler and its subsidiaries had $192,571 of surety bonds issued by an
insurance company to secure self-insured workers' compensation and
pneumoconiosis claims, reclamation and other performance commitments.  Of that
amount, $23,061 was backed by guarantees of Shell (see Note 14).  Letters of
credit of $246,161 were outstanding at December 31, 1997, of which amount
$60,053 was also guaranteed by Shell.

     In 1997, upon completion of planned development, the Company idled Encoal
Corporation's clean coal demonstration plant in Wyoming. In 1998, marketing of
the LFC technology, both domestically and internationally will continue as well
as the evaluation of options regarding Encoal.  The net book value of Encoal
Corporation's assets and the Company's related investment in clean coal
technology was $6.7 million as of December 31, 1997.

16.  LEGAL PROCEEDINGS

     Cajun Electric Power Cooperative - On December 21, 1994, Cajun Electric
Power Cooperative Inc.  ("Cajun") filed with the U.S. Bankruptcy Court for the
Middle District of Louisiana (the "Bankruptcy Court") for voluntary
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Triton Coal
Company ("Triton") has a requirements contract (the "Triton Contract") with
Cajun through Western Fuels Association, Inc., with a term extending through
the life of Big Cajun Plant No. 2.   During 1997, Triton shipped 5.8 million
tons of coal to Cajun (representing 3.0% of the Company's total consolidated
revenues), while 1996 shipments to Cajun totaled 5.0 million tons.  To date
during the bankruptcy, Triton has continued to ship coal to Cajun and Cajun has
continued to pay for such coal. The price for coal sold under the Triton
Contract is at or near the market price for this coal.  The Triton Contract
provides for a price reopener effective January 1, 1998.  The parties were
unable to reach agreement on the price to be effective January 1, 1998 and are
attempting to resolve that matter through the procedure set forth in the Triton
Contract.




                                      46
<PAGE>   49



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     An Appellate Court affirmed a District Court's ruling that a
court-appointed trustee will manage Cajun's affairs during the bankruptcy.  At
this time, it appears likely that the trustee will reject the Triton Contract.
In the event that the contract is rejected, it may be necessary for Triton to
find other markets for this coal, possibly including sales to the new operator
of Cajun's coal fired units.

     Louisiana Generating LLC (an affiliate of the Company, Southern Energy,
Inc. and NRG Energy, Inc.) has executed an Amended and Restated Asset Purchase
and Reorganization Agreement to purchase substantially all of Cajun's
non-nuclear assets.  This Agreement is incorporated in the trustee's plan of
reorganization, which is subject to Bankruptcy Court approval (including
evaluation of competing plans of reorganization) and a number of other
conditions.  As a result of Louisiana Generating's entering into this
Agreement, Western Fuels Association, Inc. has formally requested certain
assurances regarding Triton's performance under the Triton Contract and
informed the Company that it reserves the right to assert certain claims
against Triton if the trustee rejects the Triton Contract.

     Entergy-Gulf States Utilities, Inc. - Entergy-Gulf States, Inc. ("GSU")
owns 42% of Unit 3 at the Big Cajun II coal-fired power station.  Pursuant to
the Triton Contract, Triton supplies the coal requirements of all three units
at Big Cajun II.  Two of the three plans for reorganization of Cajun pending
before the Bankruptcy Court call for the rejection of the Triton Contract.
Triton and Western Fuels Association, Inc. maintain that Unit 3 is a joint
venture between GSU and Cajun, that joint ventures are partnerships under
Louisiana law and that, as Cajun's partner and as a direct beneficiary of the
coal provided by Triton, GSU is liable for some or all of their damages in the
event that the Triton Contract is rejected.  On January 13, 1997, GSU requested
a judgment from the Bankruptcy Court declaring that Cajun is the sole principal
under the Triton Contract and that GSU has no liability to Western Fuels
Association, Inc. or Triton in the event the Triton Contract is rejected.  In
February 1997, Western Fuels Association, Inc. and Triton filed a counterclaim
asking for a declaration from the Bankruptcy Court that GSU is liable to them
for damages if the Triton Contract is rejected.  On September 3, 1997, the
Bankruptcy Court granted GSU a summary judgment.  Western Fuels Association,
Inc. and Triton have appealed this judgment.

     On August 21, 1997, GSU filed additional claims against the Company,
Triton and Western Fuels Association, Inc.  In these claims, GSU alleged that
these parties violated the Sherman Antitrust Act and Louisiana Fair Trade
Statutes in the course of settlement discussions between the parties.  The
Company believes that these allegations have no merit and a Motion to Dismiss
these claims is pending.

     If the Triton Contract is rejected by the Bankruptcy Court, Triton will
suffer damages for breach of contract, for which its only remedies will be a
claim against GSU (as described above) and/or a  claim in Cajun's bankruptcy
proceeding as a creditor of Cajun, and Triton will have to find other markets
for this coal, possibly including sales to the new operator of Cajun's
coal-fired units.  Triton is currently in negotiations with alternative
customers for this coal.  Triton has executed an agreement with Louisiana
Generating pursuant to which Triton will supply coal to Big Cajun II in the
event Cajun's court-appointed trustee's plan of reorganization is confirmed by
the Bankruptcy Court and Louisiana Generating completes the purchase of Cajun's
non-nuclear assets.  Triton, Western Fuels Association, Inc., and the Trustee
have also executed an agreement which provides that if Louisiana Generating is
successful in purchasing the Cajun assets and the Triton Contract is rejected,
Triton will release any and all claims in Cajun's bankruptcy and will receive
approximately $4,000.



                                      47
<PAGE>   50



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Janet Saad-Cook et al. v. Zeigler Coal Holding Company and R. & F. Coal
Company - In March, 1995, plaintiff filed a lawsuit against the Company and its
subsidiary, R. & F. Coal Company.   The complaint includes several causes of
action based on alleged actions of the defendant companies involving fraud,
deceit, misrepresentation, and tortuous breach of contract with respect to two
coal mining leases made among the plaintiffs and R. & F. Coal Company. The
plaintiffs' complaint has since been amended to add Bluegrass Coal Development
Company as a named defendant, to eliminate the allegations that the defendants'
behavior violated the U.S. Racketeer Influenced and Corrupt Organizations Act
and to include additional causes of action involving trespass and breach of
lease.  The defendant companies have denied the allegations in the complaint,
believe they have meritorious defenses to plaintiffs' claims, and intend to
defend vigorously against the claims.   The Company believes that Shell Oil
Company is obligated to indemnify the Company against any loss (over certain
minimum amounts) that the Company may incur as a result of plaintiffs' claims
in the litigation and has given Shell notice thereof in accordance with the
terms of the purchase agreement under which the Company acquired Shell Mining
companies. The Company believes that ultimate resolution of the claims in the
lawsuit will have no material adverse effect on the Company's consolidated
results of operations or financial position.

     Other - Various lawsuits and claims, including those involving ordinary
routine matters incidental to its business, to which the Company and its
subsidiaries are a party, are pending, or have been asserted, against the
Company.  Although the outcome of these matters cannot be predicted with
certainty, management believes that their disposition will not have materially
adverse effects on the Company's consolidated results of operations or
financial position.









                                       48

<PAGE>   51



                 ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

17.  SEGMENT REPORTING

     The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, beginning with the Company's fourth quarter
of 1997.  The Company has two reportable segments: coal and energy.  The coal
segment is engaged in the mining of coal for utilities in the United States.
The energy segment is principally responsible for the trading and marketing of
electricity and natural gas within the U.S.  These reportable segments are
separately managed strategic business units that offer different products and
services, and whose performance is evaluated based on earnings from operations
before interest and taxes, not including nonrecurring gains and losses. The
accounting policies of the segments are the same as those described in Note 1.
There were no sales or transfers between segments in 1997, 1996, or 1995. The
"Other" category below consists of five operating segments that did not meet
the quantitative thresholds for determining reporting segments.  These segments
consist primarily of amounts related to two import/export terminals, a clean
coal plant in Wyoming, the Company's environmental subsidiary, coal leases to
third parties, farming, timber, gains on sales of surplus assets, oil and gas
royalties, and selling, general and administrative costs.


<TABLE>
<CAPTION>
                                                  1997       1996       1995
                                                  ----       ----       ----
<S>                                          <C>        <C>        <C>
Revenues:
  Coal                                        $603,553   $698,523   $754,975
  Energy                                       166,474          -          -
  Other                                         30,729     33,101     28,128
                                              --------   --------   --------
   Total                                      $800,756   $731,624   $783,103
Operating Earnings:
  Coal                                        $ 99,607   $ 85,357   $ 68,743
  Energy                                        (6,756)         -          -
  Other                                        (15,111)   (10,684)   (11,099)
  Nonrecurring gains/(losses)                    8,244     16,295    (45,863)
                                              --------   --------   --------
   Total                                      $ 85,984   $ 90,968   $ 11,781

Depreciation, Depletion, and Amortization:
  Coal                                        $ 53,259   $ 55,649   $ 64,382
  Energy                                            35          -          -
  Other                                          4,618      4,485      4,194
                                              --------   --------   --------
   Total                                      $ 57,912   $ 60,134   $ 68,576
Capital Expenditures:
  Coal                                        $ 65,768   $ 24,671   $ 46,496
  Energy                                           398          -          -
  Other                                          8,260      6,756      9,838
                                              --------   --------   --------
   Total                                      $ 74,426   $ 31,427   $ 56,334

Assets:
  Coal                                        $890,030   $885,724   $901,916
  Energy                                        34,583     10,000          -
  Other                                        169,344    154,901    123,325
                                              --------   --------   --------
   Total                                    $1,093,957 $1,050,625 $1,025,241
</TABLE>


18.  POSSIBLE SALE OF COMPANY

     On December 3, 1997, the Company announced that it was retaining an
investment banking firm to explore various strategic alternatives to maximize
value for shareholders, including the possible sale of the entire Company.  In
connection therewith, the Board of Directors adopted a change-in-control
severance plan and retention bonus plan for all salaried employees as well as
special incentives for certain key employees.  The Company has since retained
the investment banking firm Credit Suisse First Boston and prepared materials
for interested parties.




                                      49
<PAGE>   52
19.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Quarterly financial data for 1997 and 1996 is summarized below (in
thousands, except for per share amounts):


<TABLE>
<CAPTION>

                                                    Three Months Ended
                                       ----------------------------------------
                                        Mar. 31   Jun. 30   Sep. 30    Dec. 31
                                       ---------  --------  --------  ---------
<S>                                    <C>       <C>       <C>       <C>
1997:
  Total revenues ....................   $164,652  $183,403  $238,205  $214,496
  Operating earnings ................     19,981    22,503    25,573    17,927
  Net earnings ......................     13,014    14,743    17,629    13,253
  Net earnings per common share (1):
   Basic ............................        .46       .52       .63       .47
   Diluted ..........................        .45       .51       .62       .47

1996:
  Total revenues ....................   $181,018  $182,701  $193,222  $174,683
  Operating earnings ................     17,962    21,162    25,965    25,879
  Net earnings ......................     10,113    12,674    16,991    18,186
  Net earnings per common share (1):
   Basic ............................        .36       .45       .60       .64
   Diluted ..........................        .36       .44       .59       .63
</TABLE>



(1)  The sum of the quarterly earnings per share does not equal earnings per
     share for the year because the per share amounts are calculated
     independently for each quarter and for the year using the weighted average
     number of common shares and common share equivalents outstanding during
     each period.









                                      50

<PAGE>   53











            ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE

     There have been no changes in or disagreements with independent auditors
on accounting and financial disclosure during the two most recent fiscal years.


                                       51

<PAGE>   54




                                  PART  III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information about the Directors of the Company required by this item
is incorporated by reference to the Company's definitive Proxy Statement for
the 1998 Annual Meeting of Shareholders, to be filed not later than April 30,
1998.


ITEM 11.  EXECUTIVE  COMPENSATION

     The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.










                                      52
<PAGE>   55




                                    PART  IV


<TABLE>
<CAPTION>
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

                                                                                         Page
                                                                                         ----
<S>                                                                                      <C>
(a)  Documents filed as part of this Report:

     (1)  The following financial statements are included in Part II, Item 8:

          Independent Auditors' Report ..............................................      28

          Financial Statements:

           Consolidated Statements of Operations, Years Ended December 31,
             1997, 1996 and 1995 ....................................................      29

           Consolidated Balance Sheets, December 31, 1997 and 1996 ..................      30

           Consolidated Statements of Cash Flows, Years Ended December 31,
             1997, 1996 and 1995 ....................................................      32

           Consolidated Statements of Shareholders' Equity, Years Ended December 31,
             1997, 1996 and 1995 ....................................................      33

           Notes to Consolidated Financial Statements ...............................      34

     (2) The following consolidated financial statement schedule is included in Item
           14 at the page indicated:

         Independent Auditors' Report ...............................................      57

         Schedule II - Valuation and Qualifying Accounts, Years Ended
         December 31, 1997, 1996 and 1995 ...........................................      58

         All other schedules are omitted as not applicable or not required, or the
         required information is shown in the Consolidated Financial Statements or
         Notes thereto.

     (3)  Exhibits filed as part of this Report are as follows:
</TABLE>



Number                               Description
------                               -----------
[S]     [C]
3.1     Restated Certificate of Incorporation of Zeigler Coal Holding Company,
        as amended**

3.2     By-Laws of Zeigler Coal Holding Company+

4.1     Form of certificate representing the shares of Common Stock**

4.2     Amended and Restated Credit Agreement, dated as of October 19, 1994,
        among Zeigler Coal Holding Company, certain subsidiary borrowers,
        certain financial institutions, Bank of America NT&SA and the First
        National Bank of Chicago, as arrangers, LC issuer and administrative
        agent***



<PAGE>   56

Number                                  Description
-----                                   -----------


 4.3         Note Purchase Agreements, dated November 16, 1992,
             between Zeigler Coal Holding Company and the various purchasers
             named therein**

 4.4         Collateral Agency and Intercreditor Agreement, dated
             November 16, 1992, among Zeigler Coal Holding Company, State
             Street Bank and Trust Company of Connecticut, National
             Association, the Lenders, the Purchasers, the Administrative Agent
             and the LC Issuer, as defined therein**

 4.6         Restated Agreement of Sale, dated as of December 1, 1982,
             between Charleston County, South Carolina and Massey Coal
             Terminal, S.C.  Corporation with attached copies of the documents
             delivered in connection herewith**

 4.8         Registration Agreement, dated as of January 31, 1985 and
             amended as of November 11, 1992, between the Management Group,
             Casati, Kinman, DSC, Heise IR, Shell and the Company, as defined
             therein**

 4.9         Credit Agreement dated as of April 24,1997 by and among
             Zeigler Coal Holding Company; certain financial institutions; Bank
             of America National Trust and Savings Association and the First
             National Bank of Chicago, as Co-Documentation Agents; the First
             National Bank of Chicago, as Syndication Agent; and Bank of
             America National Trust and Savings Association, as Administrative
             Agent. ******

 4.10        Trust Indenture, dated as of August 1, 1997, between
             Peninsula Ports Authority of Virginia and PNC Bank, N. A.

 4.11        Financing Agreement, dated as of August 1, 1997, between
             Peninsula Ports Authority of Virginia and the Company.

10.2         Employment Agreement, dated February 24, 1993, between
             Zeigler Coal  Holding Company and Chand B. Vyas**

10.4         Stock Purchase Agreement, dated September 8, 1992, among
             Zeigler Coal Holding Company, Shell Oil Company and Shell Energy
             Company, as amended**

10.5         Indemnification Agreement, dated November 23, 1992, among
             Shell Oil Company, Zeigler Coal Holding Company and subsidiaries of
             Zeigler Coal Holding Company listed on the signature page thereto**

10.6         1994 Stock Option Plan**

10.7         1990 Stock Appreciation Plan and amendments thereto**

10.9         Agreement for Sale and Purchase of Coal, dated as of January
             1, 1971, by and between Carolina Power & Light Company, Wolf Creek
             Collieries, Kermit Coal Company and Massey Coal Sales Company,
             Incorporated, as amended*

10.10        Agreement, dated March 31, 1977, among A.T. Massey Coal
             Company, Inc.  and  Marrowbone  Development  Company  and Georgia
             Power Company, as  amended*

10.11        Coal Purchase and Sales Agreement, dated October 30, 1987, by and
             between Georgia Power Company and Shell Mining Company, as amended*






                                       54

<PAGE>   57




Number                          Description
------                          -----------

10.14       Coal Lease, dated November 1, 1967, between the United
            States of America, through the Bureau of Land Management and
            Farmers Union Central Exchange, Incorporated Buckskin Mine site
            (Triton Coal Company)*

10.15       Coal Lease, dated August 23, 1982 and effective as of
            September 1, 1982, between the United States of America, through
            the Bureau of Land Management and Shell Oil Company re Spring Draw
            site (Triton Coal Company)**

10.16       Coal Lease, dated December 1, 1967, between the United
            States of America, through the Bureau of Land Management and Humble
            Oil & Refining Company (readjusted in the name of Exxon Coal USA,
            Inc.) re conveyance of partial lease to Shell Mining Company
            (Triton Coal Company)**

10.17       Coal Lease, dated December 1, 1966, between the United
            States, through the Bureau of Land Management of America and Sentry
            Royalty Company (readjusted in the name of Shell Mining Company) re
            North Rochelle site**

10.18       Fourth Amendment dated as of April 1, 1995 to the Agreement
            for Sale and Purchase of Coal, dated as of January 1, 1985, between
            Carolina Power & Light Company, Wolf Creek Collieries Company,
            Kermit Coal Company and Massey Coal Sales Company, Incorporated, as
            amended.****

10.19       Amended and Restated Agreement for Sale and Purchase of Coal
            dated as of July 1, 1996, by and between Carolina Power & Light
            Company, as buyer, and Mountaineer Coal Development Company, d/b/a
            Marrowbone Development Company, and Bluegrass Coal Development
            Company, as sellers. *****

10.20       Special Bonus and Severance Pay Plan

21.1        Subsidiaries of the Company

23.1        Consent of Deloitte & Touche LLP

24.1        Power of Attorney

*      Previously filed with Registration Statement No. 33-80646 and is
       incorporated herein by reference.  Contains material for which
       confidential treatment has been granted pursuant to Rule 406 under the
       Securities Act.

**     Previously filed with Registration Statement No. 33-80646 and is
       incorporated herein by reference.

***    Previously filed with Form 10-K dated March 30, 1995 and is incorporated
       herein by reference.

****   Previously filed with Form 10-Q dated November 17, 1995 and is
       incorporated herein by reference.

*****  Previously filed with Form 8-K dated July 22, 1996 and is incorporated
       herein by reference.  Contains material for which confidential
       treatment has been granted pursuant to Rule 24b-2 under the Securities
       Exchange Act.

****** Previously filed with Form 10-Q dated November 10, 1997.

+      Previously filed.
                                      55

<PAGE>   58


(b)  Reports on Form 8-K:
     The Company filed no reports on Form 8-K during the quarterly period ended
     December 31, 1997.

                                      56

<PAGE>   59




                         INDEPENDENT AUDITORS' REPORT



To Zeigler Coal Holding Company:

     We have audited the consolidated financial statements of Zeigler Coal
Holding Company and Subsidiaries as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 5, 1998; such report is included elsewhere in
this Annual Report on Form 10-K.  Our audits also included the consolidated
financial statement schedule listed in Item 14(a)(2) of this report.  This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.  In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.






DELOITTE & TOUCHE LLP

St. Louis, Missouri
February 5, 1998














                                       57

<PAGE>   60

                                                                     SCHEDULE II



                          ZEIGLER COAL HOLDING COMPANY

                       VALUATION AND QUALIFYING ACCOUNTS

                   YEARS ENDED DECEMBER 31, 1997, 1996, 1995


<TABLE>
<CAPTION>
                                                                     Additions
                                                        Balance at   Charged to                         Balance
                                                         Beginning    Costs and                Other     at End
        Description                                      of Period  Expenses(1)  Deductions   Charges  of Period
        -----------                                     ----------  -----------  ----------   -------  ---------
            (A)                                              (B)          (C)         (D)        (E)        (F)
<S>                                                       <C>           <C>        <C>         <C>      <C>
1997
Allowance for doubtful accounts ..............            $ 1,267       $  389     $   355     $  -     $1,301
Allowance for pricing disputes ...............              1,573          663       1,646        -        590
                                                          -------       ------     -------     ----     ------
  Total allowances for accounts receivable ...            $ 2,840       $1,052     $ 2,001     $  -     $1,891
                                                          =======       ======     =======     ====     ======
Reserve for mine supply inventory
 obsolescence ................................            $ 3,395       $3,426     $ 1,789     $  -     $5,032


1996
Allowance for doubtful accounts ..............            $ 1,010       $  306     $    49     $  -     $1,267
Allowance for pricing disputes ...............              1,601          407         435        -      1,573
                                                          -------       ------     -------     ----     ------
  Total allowances for accounts receivable ...            $ 2,611       $  713     $   484     $  -     $2,840
                                                          =======       ======     =======     ====     ======
Reserve for mine supply inventory
 obsolescence ................................            $ 2,692       $1,396     $   693     $  -     $3,395


1995
Allowance for doubtful accounts ..............            $ 1,250       $  100     $   340     $  -     $1,010
Allowance for pricing disputes ...............             12,177        3,529      14,105        -      1,601
                                                          -------       ------     -------     ----     ------
  Total allowances for accounts receivable ...            $13,427       $3,629     $14,445     $  -     $2,611
                                                          =======       ======     =======     ====     ======
Reserve for mine supply inventory
 obsolescence ................................            $ 3,294       $  735     $ 1,337     $  -     $2,692
</TABLE>



Notes:

(1)  Additions to the allowance for pricing disputes are charged against coal
     sales in accordance with the revenue recognition policy.



                                       58

<PAGE>   61




                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Fairview Heights, State of Illinois on March 24, 1998.

                                ZEIGLER COAL HOLDING COMPANY
                                (Registrant)

                                By:      /s/ Brent L. Motchan
                                    -----------------------------
                                        Name: Brent L. Motchan
                                        Title: Vice President, General Counsel
                                                and Secretary

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 24, 1998.


<TABLE>
<CAPTION>
             Signature                                          Capacity
             ---------                                          ---------
<S>                                                    <C>

              *                                          Chairman of the Board and Director
-----------------------------------
     Michael K. Reilly

              *
-----------------------------------                      Chief Executive Officer, President and
         Chand B. Vyas                                   Director (Principal Executive Officer)

  /s/ Francis L. Barkofske                               Senior Vice President & Chief Financial
-----------------------------------                      Officer (Principal Financial Officer)
      Francis L. Barkofske

         /s/ Paul D. Femmer                              Controller (Principal Accounting Officer)
-----------------------------------
         Paul D. Femmer

              *
-----------------------------------                                   Director
     Roland E. Casati


              *
-----------------------------------                                   Director
     Robert W. Ericson

              *
-----------------------------------                                   Director
     John F. Manley

*By:  /s/ Brent L. Motchan                                     Attorney-in-Fact
    -------------------------------
          Brent L. Motchan
</TABLE>


     Original powers of attorney authorizing Brent L. Motchan to sign this
Annual Report on Form 10-K  and amendments thereto on behalf of the above-named
persons have been filed with the Securities and Exchange Commission as Exhibit
24.1 to this Report.




                                      59

<PAGE>   62




                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
      Number                         Description
      ------  ---------------------------------------------------------------
<S>           <C>
        3.1   Restated Certificate of Incorporation of Zeigler Coal Holding
              Company, as amended**

        3.2   By-Laws of Zeigler Coal Holding Company+

        4.1   Form of certificate representing the shares of Common Stock**

        4.2   Amended and Restated Credit Agreement, dated as of
              October 19, 1994, among Zeigler Coal Holding Company, certain
              subsidiary borrowers, certain financial institutions, Bank of
              America NT&SA and the First National Bank of Chicago, as
              arrangers, LC issuer and administrative agent***

        4.3   Note Purchase Agreements, dated November 16, 1992,
              between Zeigler Coal Holding Company and the various purchasers
              named therein**

        4.4   Collateral Agency and Intercreditor Agreement, dated
              November 16, 1992 among Zeigler Coal Holding Company, State Street
              Bank and Trust Company of Connecticut, National Association, the
              Lenders, the Purchasers, the Administrative Agent and the LC
              Issuer, as defined therein**

        4.6   Restated Agreement of Sale, dated as of December 1, 1982,
              between Charleston County, South Carolina and Massey Coal
              Terminal, S.C.  Corporation with attached copies of the documents
              delivered in connection herewith**

        4.8   Registration Agreement, dated as of January 31, 1985 and
              amended as of November 11, 1992, between the Management Group,
              Casati, Kinman, DSC, Heise IR, Shell and the Company, as defined
              therein**

        4.9   Credit Agreement dated as of April 24,1997 by and among
              Zeigler Coal Holding Company; certain financial institutions;
              Bank of America National Trust and Savings Association and the
              First National Bank of Chicago, as Co-Documentation Agents; the
              First National Bank of Chicago, as Syndication Agent; and Bank of
              America National Trust and Savings Association, as Administrative
              Agent. ******

        4.10  Trust Indenture, dated as of August 1, 1997, between
              Peninsula Ports Authority of Virginia and PNC Bank, N. A.

        4.11  Financing Agreement, dated as of August 1, 1997,
              between Peninsula Ports Authority of Virginia and the Company.

       10.2   Employment Agreement, dated February 24, 1993, between
              Zeigler Coal  Holding Company and Chand B. Vyas**

       10.4   Stock Purchase Agreement, dated September 8, 1992, among
              Zeigler Coal Holding Company, Shell Oil Company and Shell Energy
              Company, as amended**

       10.5   Indemnification Agreement, dated November 23, 1992, among
              Shell Oil Company, Zeigler Coal Holding Company and subsidiaries of
              Zeigler Coal Holding Company listed on the signature page thereto**

       10.6   1994 Stock Option Plan**
</TABLE>

<PAGE>   63

<TABLE>
<CAPTION>

      Number                     Description
      ------  -----------------------------------------------------
<S>           <C>
        10.7  1990 Stock Appreciation Plan and amendments thereto**


        10.9  Agreement for Sale and Purchase of Coal, dated as of
              January 1, 1971, by and between Carolina Power & Light Company,
              Wolf Creek Collieries, Kermit Coal Company and Massey Coal Sales
              Company, Incorporated, as amended*

        10.10 Agreement, dated March 31, 1977, among A.T. Massey Coal
              Company, Inc. and Marrowbone Development Company and Georgia Power
              Company, as  amended*

        10.11 Coal Purchase and Sales Agreement, dated October 30,
              1987, by and between Georgia Power Company and Shell Mining
              Company, as amended*

        10.14 Coal Lease, dated November 1, 1967, between the United
              States of America, through the Bureau of Land Management and
              Farmers Union Central Exchange, Incorporated re Buckskin Mine site
              (Triton Coal Company)*

        10.15 Coal Lease, dated August 23, 1982 and effective as of
              September 1, 1982, between the United States of America, through
              the Bureau of Land Management and Shell Oil Company re Spring Draw
              site (Triton Coal Company)**

        10.16 Coal Lease, dated December 1, 1967, between the United
              States of America, through the Bureau of Land Management and
              Humble Oil & Refining Company (readjusted in the name of Exxon
              Coal USA, Inc.) re conveyance of partial lease to Shell Mining
              Company (Triton Coal Company)**

        10.17 Coal Lease, dated December 1, 1966, between the United
              States, through the Bureau of Land Management of America and
              Sentry Royalty Company (readjusted in the name of Shell Mining
              Company) re North Rochelle site**

        10.18 Fourth Amendment dated as of April 1, 1995 to the
              Agreement for Sale and Purchase of Coal, dated as of January 1,
              1985, between Carolina Power & Light Company, Wolf Creek
              Collieries Company, Kermit Coal Company and Massey Coal Sales
              Company, Incorporated, as amended.****

       10.19  Amended and Restated Agreement for Sale and Purchase of
              Coal dated as of July 1, 1996, by and between Carolina Power &
              Light Company, as buyer, and Mountaineer Coal Development Company,
              d/b/a Marrowbone Development Company, and Bluegrass Coal
              Development Company, as sellers. *****

       10.20  Special Bonus and Severance Pay Plan

       21.1   Subsidiaries of the Company

       23.1   Consent of Deloitte & Touche LLP

       24.1   Power of Attorney
</TABLE>


<PAGE>   64

   *   Previously filed with Registration Statement No. 33-80646 and is
       incorporated herein by  reference.  Contains material for which
       confidential treatment has been granted pursuant to Rule 406 under
       the Securities Act.


**     Previously filed with Registration Statement No. 33-80646 and is
       incorporated herein by reference.

***    Previously filed with Form 10-K dated March 30, 1995 and is
       incorporated herein by reference

****   Previously filed with Form 10-Q dated November 17, 1995 and is
       incorporated herein by reference.

*****  Previously filed with Form 8-K dated July 22, 1996 and is incorporated
       herein by reference.  Contains material for which confidential treatment
       has been granted pursuant to Rule 24b-2 under the Securities Exchange
       Act.

****** Previously filed with Form 10-Q dated November 10, 1997.

+ Previously filed.