<PAGE>   1
                                                                    EXHIBIT 10.4



                                     FORM OF

                 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

                                      AMONG

                            C-CUBE MICROSYSTEMS INC.,

                            C-CUBE SEMICONDUCTOR INC.

                                       AND

                          C-CUBE SEMICONDUCTOR II INC.

                               _____________, 2000


<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C>
ARTICLE I. MUTUAL RELEASES; INDEMNIFICATION...........................................1

     Section 1.1.    Release of Pre-Closing Claims....................................1
     Section 1.2.    Indemnification by Semiconductor I...............................2
     Section 1.3.    Indemnification by C-Cube........................................2
     Section 1.4.    Indemnification With Respect to Environmental Actions and
                     Conditions ......................................................3
     Section 1.5.    Procedures for Defense, Settlement and Indemnification
                     of Third Party Claims ...........................................4
     Section 1.6.    Additional Matters...............................................5
     Section 1.7.    Survival of Indemnities..........................................5

ARTICLE II. INSURANCE MATTERS.........................................................6

     Section 2.1.    Cooperation and Agreement Not to Release Carriers................6
     Section 2.2.    Semiconductor I and Semiconductor II Insurance Coverage..........6
     Section 2.3.    Responsibilities for Self-insured Obligations....................6
     Section 2.4.    Procedures With Respect to Insured Semiconductor
                     Liabilities .....................................................6
     Section 2.5.    Cooperation......................................................7
     Section 2.6.    No Assignment or Waiver..........................................7
     Section 2.7.    No Restrictions..................................................7
     Section 2.9.    Matters Governed by Employee Matters Agreement...................7

ARTICLE III. MISCELLANEOUS............................................................7

     Section 3.1.    Entire Agreement.................................................7
     Section 3.2.    Governing Law....................................................7
     Section 3.3.    Notices..........................................................8
     Section 3.4.    Parties in Interest..............................................8
     Section 3.5.    Other Agreements Evidencing Indemnification Obligations..........8
     Section 3.6.    Counterparts.....................................................8
     Section 3.7.    Assignment.......................................................8
     Section 3.8.    Severability.....................................................8
     Section 3.9.    Failure or Indulgence Not Waiver.................................9
     Section 3.10.   Amendment........................................................9
     Section 3.11.   Authority........................................................9
     Section 3.12.   Interpretation...................................................9

ARTICLE IV. DEFINITIONS...............................................................9

     Section 4.1.    Action...........................................................9
     Section 4.2.    Affiliated Company...............................................9
     Section 4.3.    Assignment Agreement.............................................9
     Section 4.4.    C-Cube Facilities................................................9
     Section 4.5.    C-Cube Group....................................................10
     Section 4.6.    C-Cube Indemnitees..............................................10
</TABLE>


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                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C>
     Section 4.7.    Employee Matters Agreement......................................10
     Section 4.8.    Environmental Actions...........................................10
     Section 4.9.    Environmental Conditions........................................10
     Section 4.10.   Environmental Laws..............................................10
     Section 4.11.   Governmental Authority..........................................10
     Section 4.12.   Hazardous Materials.............................................10
     Section 4.13.   Indemnitee......................................................11
     Section 4.14.   Insurance Policies..............................................11
     Section 4.15.   Insurance Proceeds..............................................11
     Section 4.16.   Insured Semiconductor Liability.................................11
     Section 4.17.   Liabilities.....................................................11
     Section 4.18.   Person..........................................................11
     Section 4.19.   Prime Rate......................................................11
     Section 4.20.   Related Semiconductor Contingent Liabilities....................11
     Section 4.21.   Release.........................................................11
     Section 4.22.   "Retained Liabilities"..........................................11
     Section 4.23.   Semiconductor Assets............................................11
     Section 4.24.   Semiconductor Business..........................................12
     Section 4.25.   Semiconductor Contingent Liability..............................12
     Section 4.26.   Semiconductor Contracts.........................................12
     Section 4.27.   Semiconductor Group.............................................12
     Section 4.28.   Semiconductor Indemnitees.......................................12
     Section 4.29.   Semiconductor Liabilities.......................................12
     Section 4.30.   Separation......................................................12
     Section 4.31.   Separation Agreement............................................12
     Section 4.32.   Separation Date.................................................12
     Section 4.33.   Subsidiary......................................................12
     Section 4.34.   Tax Sharing Agreement...........................................12
     Section 4.35.   Taxes...........................................................13
     Section 4.36.   Third Party Claim...............................................13
</TABLE>



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<PAGE>   4
                 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

        This Indemnification and Insurance Matters Agreement (this "AGREEMENT")
is entered into on __________, 2000 among C-Cube Microsystems Inc., a Delaware
corporation ("C-CUBE"), and C-Cube Semiconductor Inc., a Delaware corporation
("SEMICONDUCTOR I "), and C-Cube Semiconductor II Inc., a Delaware corporation
("SEMICONDUCTOR II"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the ARTICLE IV below.

                                    RECITALS

        [INSERT RECITALS]

        NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:

                                   ARTICLE I.

                        MUTUAL RELEASES; INDEMNIFICATION

        SECTION 1.1. RELEASE OF PRE-CLOSING CLAIMS.

        (a) Semiconductor Release. Except as provided in SECTION 1.1(c),
effective as of the Separation Date, Semiconductor I does hereby, for itself and
as agent for each member of the Semiconductor Group (which includes
Semiconductor II), remise, release and forever discharge the C-Cube Indemnitees
from any and all Liabilities whatsoever, whether at law or in equity (including
any right of contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to have failed to
occur or any conditions existing or alleged to have existed on or before the
Separation Date, including in connection with the transactions and all other
activities to implement any of the Separation, the Merger and the Distribution.

        (b) C-Cube Release. Except as provided in SECTION 1.1(c), effective
as of the Separation Date, C-Cube does hereby, for itself and as agent for each
member of the C-Cube Group, remise, release and forever discharge the
Semiconductor Indemnitees from any and all Liabilities whatsoever, whether at
law or in equity (including any right of contribution), whether arising under
any contract or agreement, by operation of law or otherwise, existing or arising
from any acts or events occurring or failing to occur or alleged to have
occurred or to have failed to occur or any conditions existing or alleged to
have existed on or before the Separation Date, including in connection with the
transactions and all other activities to implement any of the Separation, the
Merger and the Distribution.

        (c) No Impairment. Nothing contained in SECTION 1.1(a) or (b) shall
impair any right of any Person to enforce the Separation Agreement or any
Ancillary Agreement (including this Agreement), in each case in accordance with
its terms.


<PAGE>   5
        (d) No Actions as to Released Claims. Semiconductor I agrees, for
itself and as agent for each member of the Semiconductor Group, not to make any
claim or demand, or commence any Action asserting any claim or demand, including
any claim of contribution or any indemnification, against C-Cube or any member
of the C-Cube Group, or any other Person released pursuant to SECTION 1.1(a),
with respect to any Liabilities released pursuant to SECTION 1.1(a). C-Cube
agrees, for itself and as agent for each member of the C-Cube Group, not to make
any claim or demand, or commence any Action asserting any claim or demand,
including any claim of contribution or any indemnification, against
Semiconductor I or any member of the Semiconductor Group, or any other Person
released pursuant to SECTION 1.1(b), with respect to any Liabilities released
pursuant to SECTION 1.1(b).

        (e) Further Instruments. At any time, at the request of any other
party, each party shall cause each member of its respective Group to execute and
deliver releases reflecting the provisions hereof.

        SECTION 1.2. INDEMNIFICATION BY SEMICONDUCTOR I. Except as otherwise
provided in this Agreement, Semiconductor I shall, for itself and as agent for
each member of the Semiconductor Group, indemnify, defend (or, where applicable,
pay the defense costs for) and hold harmless the C-Cube Indemnitees from and
against any and all Liabilities that any third party seeks to impose upon the
C-Cube Indemnitees, or which are imposed upon the C-Cube Indemnitees, and that
relate to, arise out of or result from any of the following items (without
duplication):

                  (i) the Semiconductor Business, any Semiconductor Liability or
any Semiconductor Contract; and

                  (ii) any breach by Semiconductor I or any member of the
Semiconductor Group of the Separation Agreement or any of the Ancillary
Agreements (including this Agreement).

In the event that any member of the Semiconductor Group makes a payment to the
C-Cube Indemnitees hereunder, and any of the C-Cube Indemnitees subsequently
diminishes the Liability on account of which such payment was made, either
directly or through a third-party recovery, C-Cube will promptly repay (or will
procure a C-Cube Indemnitee to promptly repay) such member of the Semiconductor
Group the amount by which the payment made by such member of the Semiconductor
Group exceeds the actual cost of the associated indemnified Liability.

        SECTION 1.3. INDEMNIFICATION BY C-CUBE. Except as otherwise provided in
this Agreement, C-Cube shall, for itself and as agent for each member of the
C-Cube Group, indemnify, defend (or, where applicable, pay the defense costs
for) and hold harmless the Semiconductor Indemnitees from and against any and
all Liabilities that any third party seeks to impose upon the Semiconductor
Indemnitees, or which are imposed upon the Semiconductor Indemnitees, and that
relate to, arise out of or result from any of the following items (without
duplication):

                  (i) the DiviCom Business or any Liability of the C-Cube Group
other than the Semiconductor Liabilities including, without limitation, the
Excluded Liabilities; and



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<PAGE>   6
                  (ii) any breach by C-Cube or any member of the C-Cube Group of
the Separation Agreement or any of the Ancillary Agreements (including this
Agreement).

In the event that any member of the C-Cube Group makes a payment to the
Semiconductor Indemnitees hereunder, and any of the Semiconductor Indemnitees
subsequently diminishes the Liability on account of which such payment was made,
either directly or through a third-party recovery, Semiconductor I will promptly
repay (or will procure a Semiconductor Indemnitee to promptly repay) such member
of the C-Cube Group the amount by which the payment made by such member of the
C-Cube Group exceeds the actual cost of the indemnified Liability. This SECTION
1.3 shall not apply to any Liability indemnified under SECTION 1.4.

        SECTION 1.4. INDEMNIFICATION WITH RESPECT TO ENVIRONMENTAL ACTIONS AND
CONDITIONS.

        (a) Indemnification by Semiconductor I. Semiconductor I shall, for
itself and as agent for each member of the Semiconductor Group, indemnify,
defend and hold harmless the C-Cube Indemnitees from and against any and all
Environmental Actions relating to, arising out of or resulting from
Environmental Conditions (i) arising out of operations occurring on and after
the Separation Date at any of the Semiconductor Facilities, or (ii) on any of
the Semiconductor Facilities arising from an event causing contamination that
first occurs on or after the Separation Date (including any Release of Hazardous
Materials occurring after the Separation Date that migrates to any of the
Semiconductor Facilities), except to the extent that such Environmental
Conditions arise out of the operations of the C-Cube Group on and after the
Separation Date.

        (b) Indemnification by C-Cube. C-Cube shall, for itself and as agent
for each member of the C-Cube Group, indemnify, defend and hold harmless the
Semiconductor Indemnitees from and against any and all Environmental Actions
relating to, arising out of or resulting from any of the following items:

                  (i) Environmental Conditions (x) existing on, under, about or
in the vicinity of any of the Semiconductor Facilities prior to the Separation
Date, or (y) arising out of operations occurring on or before the Separation
Date at any of the Semiconductor Facilities;

                  (ii) Except as arising out of the operations of the
Semiconductor Group on and after the Separation Date, Environmental Conditions
on, under, about or arising out of operations occurring at any time, whether
before or after the Separation Date, at any of the C-Cube Facilities; and

                  (iii) Pre-Separation Third Party Site Liabilities.

        (c) Agreement Regarding Payments to Indemnitee. In the event an
Indemnifying Party makes any payment to or on behalf of an Indemnitee with
respect to an Environmental Action for which the Indemnifying Party is obligated
to indemnify under this SECTION 1.4, and the Indemnitee subsequently receives
any payment from a third party on account of the same financial obligation
covered by the payment made by the Indemnifying Party for that Environmental
Action or otherwise diminishes the financial obligation, the Indemnitee will
promptly pay the Indemnifying Party the



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<PAGE>   7

amount by which the payment made by the Indemnifying Party, exceeds the actual
cost of the financial obligation.

        SECTION 1.5. PROCEDURES FOR DEFENSE, SETTLEMENT AND INDEMNIFICATION OF
THIRD PARTY CLAIMS.

        (a) Notice of Claims. If a C-Cube Indemnitee or a Semiconductor
Indemnitee (as applicable) (an "INDEMNITEE") shall receive notice or otherwise
learn of the assertion by a Person (including any Governmental Authority) who is
not a member of the C-Cube Group or the Semiconductor Group of any claim or of
the commencement by any such Person of any Action (collectively, a "THIRD PARTY
CLAIM") with respect to which a party (an "INDEMNIFYING PARTY") may be obligated
to provide indemnification to such Indemnitee pursuant to SECTION 1.2 or 1.3, or
any other section of the Separation Agreement or any Ancillary Agreement
(including this Agreement), C-Cube and Semiconductor I (as applicable) will
ensure that such Indemnitee shall give such Indemnifying Party written notice
thereof within 30 days after becoming aware of such Third Party Claim. Any such
notice shall describe the Third Party Claim in reasonable detail.
Notwithstanding the foregoing, the delay or failure of any Indemnitee or other
Person to give notice as provided in this SECTION 1.4(a) shall not relieve the
related Indemnifying Party of its obligations under this ARTICLE I, except to
the extent that such Indemnifying Party is actually and substantially prejudiced
by such delay or failure to give notice.

        (b) Defense By Indemnifying Party. An Indemnifying Party will manage
the defense of and (unless the Indemnifying Party has specified any reservations
or exceptions to the obligation to manage the defense or to indemnify that have
been referred to, but not resolved by, the Claims Committee) may settle or
compromise any Third Party Claim. Within 30 days after the receipt of notice
from an Indemnitee in accordance with SECTION 1.4(a) (or sooner, if the nature
of such Third Party Claim so requires), the Indemnifying Party shall notify the
Indemnitee that the Indemnifying Party will assume responsibility for managing
the defense of such Third Party Claim, which notice shall specify any
reservations or exceptions.

        (c) Defense By Indemnitee. If an Indemnifying Party fails to assume
responsibility for managing the defense of a Third Party Claim, or fails to
notify an Indemnitee that it will assume responsibility as provided in SECTION
1.4(b), such Indemnitee may manage the defense of such Third Party Claim;
provided, however, that the Indemnifying Party shall reimburse all such costs
and expenses in the event it is ultimately determined that the Indemnifying
Party is obligated to indemnify the Indemnitee with respect to such Third Party
Claim.

        (d) No Settlement By Indemnitee Without Consent. Unless the
Indemnifying Party has failed to manage the defense of the Third Party Claim in
accordance with the terms of this Agreement, no Indemnitee may settle or
compromise any Third Party Claim without the consent of the Indemnifying Party.

        (e) No Consent to Certain Judgments or Settlements Without Consent.
Notwithstanding SECTION 1.4(b) above, no party shall consent to entry of any
judgment or enter into any settlement of a Third Party Claim without the consent
of the other party (such consent not to be unreasonably



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<PAGE>   8

withheld) if the effect of such judgment or settlement is to (A) permit any
injunction, declaratory judgment, other order or other nonmonetary relief to be
entered, directly or indirectly, against the other party or (B) affect the other
party in a material fashion due to the allocation of Liabilities and related
indemnities set forth in the Separation Agreement, this Agreement or any other
Ancillary Agreement.

        SECTION 1.6. ADDITIONAL MATTERS.

        (a) Cooperation in Defense and Settlement. With respect to any Third
Party Claim that implicates both Semiconductor I and C-Cube in a material
fashion due to the allocation of Liabilities, responsibilities for management of
defense and related indemnities set forth in the Separation Agreement, this
Agreement or any of the Ancillary Agreements, the parties agree to cooperate
fully and maintain a joint defense (in a manner that will preserve the
attorney-client privilege with respect thereto) so as to minimize such
Liabilities and defense costs associated therewith. The party that is not
responsible for managing the defense of such Third Party Claims shall, upon
reasonable request, be consulted with respect to significant matters relating
thereto and may, if necessary or helpful, associate counsel to assist in the
defense of such claims.

        (b) Substitution. In the event of an Action in which the Indemnifying
Party is not a named defendant, if either the Indemnitee or the Indemnifying
Party shall so request, the parties shall endeavor to substitute the
Indemnifying Party for the named defendant. If such substitution or addition
cannot be achieved for any reason or is not requested, the rights and
obligations of the parties regarding indemnification and the management of the
defense of claims as set forth in this ARTICLE I shall not be altered.

        (c) Subrogation. In the event of payment by or on behalf of any
Indemnifying Party to or on behalf of any Indemnitee in connection with any
Third Party Claim, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnitee, in whole or in part based upon whether
the Indemnifying Party has paid all or only part of the Indemnitee's Liability,
as to any events or circumstances in respect of which such Indemnitee may have
any right, defense or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or against any other
person. Such Indemnitee shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim.

        (d) Not Applicable to Taxes. This Agreement shall not apply to Taxes
(which are covered by the Tax Sharing Agreement).

        SECTION 1.7. SURVIVAL OF INDEMNITIES. Subject to SECTION 3.7, the rights
and obligations of the members of the C-Cube Group and the Semiconductor Group
under this ARTICLE I shall survive the sale or other transfer by any party of
any Semiconductor Assets or businesses or the assignment by it of any
Liabilities or the sale by any member of the C-Cube Group or the Semiconductor
Group of the capital stock or other equity interests of any Subsidiary to any
Person.



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                                   ARTICLE II.

                                INSURANCE MATTERS

        SECTION 2.1. COOPERATION AND AGREEMENT NOT TO RELEASE CARRIERS. Each of
C-Cube and Semiconductor I will share such information as is reasonably
necessary in order to permit the other to manage and conduct its insurance
matters in an orderly fashion. Each of C-Cube and Semiconductor I, at the
request of the other, shall cooperate with and use commercially reasonable
efforts to assist the other in recoveries for claims made under any insurance
policy for the benefit of any insured party, and neither C-Cube nor
Semiconductor I, nor any of their Subsidiaries, shall take any action which
would intentionally jeopardize or otherwise interfere with either party's
ability to collect any proceeds payable pursuant to any insurance policy. Except
as otherwise contemplated by the Separation Agreement, this Agreement or any
Ancillary Agreement, after the Separation Date, neither C-Cube nor Semiconductor
I shall (and shall ensure that no member of their respective Groups shall),
without the consent of the other, provide any insurance carrier with a release,
or amend, modify or waive any rights under any such policy or agreement, if such
release, amendment, modification or waiver would adversely affect any rights or
potential rights of any member of the other Group thereunder. However, nothing
in this SECTION 2.1 shall (A) preclude any member of any Group from presenting
any claim or from exhausting any policy limit, (B) require any member of any
Group to pay any premium or other amount or to incur any Liability or (C)
require any member of any Group to renew, extend or continue any policy in
force.

        SECTION 2.2. SEMICONDUCTOR I AND SEMICONDUCTOR II INSURANCE COVERAGE.
From and after the Distribution Date, Semiconductor I and Semiconductor II, and
Semiconductor I and Semiconductor II alone, shall be responsible for obtaining
and maintaining insurance programs for their risk of loss and such insurance
arrangements shall be separate and apart from C-Cube's insurance programs.
Notwithstanding the foregoing, C-Cube, upon the request of Semiconductor I or
Semiconductor II, shall use all commercially reasonable efforts to assist
Semiconductor I or Semiconductor II in the transition to their own separate
insurance programs from and after the Distribution Date, and shall provide
Semiconductor I or Semiconductor II with any information that is in the
possession of C-Cube and is reasonably available and necessary to either obtain
insurance coverages for Semiconductor I or Semiconductor II or to assist
Semiconductor I or Semiconductor II in preventing unintended self-insurance, in
whatever form.

        SECTION 2.3. RESPONSIBILITIES FOR SELF-INSURED OBLIGATIONS.
Semiconductor I or Semiconductor II will reimburse C-Cube for all amounts
necessary to exhaust or otherwise satisfy all applicable self-insured
retentions, amounts for fronted policies, deductibles and retrospective premium
adjustments and similar amounts not covered by Insurance Policies in connection
with Semiconductor Liabilities and Insured Semiconductor Liabilities.

        SECTION 2.4. PROCEDURES WITH RESPECT TO INSURED SEMICONDUCTOR
LIABILITIES.

        (a) Reimbursement. Semiconductor I or Semiconductor II, as
applicable, will reimburse C-Cube for all amounts incurred to pursue insurance
recoveries from Insurance Policies for Insured Semiconductor Liabilities.



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<PAGE>   10
        (b) Management of Claims. The defense of claims, suits or actions
giving rise to potential or actual Insured Semiconductor Liabilities will be
managed (in conjunction with C-Cube's insurers, as appropriate) by the party
that would have had responsibility for managing such claims, suits or actions
had such Insured Semiconductor Liabilities been Semiconductor Liabilities.

        SECTION 2.5. COOPERATION. C-Cube and Semiconductor I and Semiconductor
II will cooperate with each other in all respects, and they shall execute any
additional documents which are reasonably necessary, to effectuate the
provisions of this ARTICLE II.

        SECTION 2.6. NO ASSIGNMENT OR WAIVER. This Agreement shall not be
considered as an attempted assignment of any policy of insurance or as a
contract of insurance and shall not be construed to waive any right or remedy of
any member of the C-Cube Group in respect of any Insurance Policy or any other
contract or policy of insurance.

        SECTION 2.7. NO RESTRICTIONS. Nothing in this Agreement shall be deemed
to restrict any member of the Semiconductor Group from acquiring at its own
expense any other insurance policy in respect of any Liabilities or covering any
period.

        SECTION 2.8. FURTHER AGREEMENTS. The Parties acknowledge that they
intend to allocate financial obligations without violating any laws regarding
insurance, self-insurance or other financial responsibility. If it is determined
that any action undertake pursuant to the Separation Agreement, this Agreement
or any Ancillary Agreement is violative of any insurance, self-insurance or
related financial responsibility law or regulation, the parties agree to work
together to do whatever is necessary to comply with such law or regulation while
trying to accomplish, as much as possible, the allocation of financial
obligations as intended in the Separation Agreement, this Agreement and any
Ancillary Agreement.

        SECTION 2.9. MATTERS GOVERNED BY EMPLOYEE MATTERS AGREEMENT. This
ARTICLE II shall not apply to any insurance policies that are the subject of the
Employee Matters Agreement.

                                  ARTICLE III.

                                  MISCELLANEOUS

        SECTION 3.1. ENTIRE AGREEMENT. This Agreement, the Master Separation
Agreement, the other Ancillary Agreements and the Exhibits and Schedules
attached hereto and thereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof.

        SECTION 3.2. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware as to all matters
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.



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        SECTION 3.3. NOTICES. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (i) when received, (ii) when delivered personally, (iii)
one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the attention of
the party's General Counsel at the address of its principal executive office or
such other address as a party may request by notifying the other in writing.

        SECTION 3.4. PARTIES IN INTEREST. This Agreement, including the
Schedules and Exhibits hereto, and the other documents referred to herein, shall
be binding upon C-Cube, C-Cube's Subsidiaries, Semiconductor I and Semiconductor
II and their Subsidiaries and inure solely to the benefit of the Semiconductor
Indemnitees and the C-Cube Indemnitees and their respective permitted assigns,
and nothing in this Agreement, express or implied, is intended to confer upon
any other Person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.

        SECTION 3.5. OTHER AGREEMENTS EVIDENCING INDEMNIFICATION OBLIGATIONS.
C-Cube hereby agrees to execute, for the benefit of any Semiconductor
Indemnitee, such documents as may be reasonably requested by such Semiconductor
Indemnitee, evidencing C-Cube's agreement that the indemnification obligations
of C-Cube set forth in this Agreement inure to the benefit of and are
enforceable by such Semiconductor Indemnitee. Semiconductor I hereby agrees to
execute, for the benefit of any C-Cube Indemnitee, such documents as may be
reasonably requested by such C-Cube Indemnitee, evidencing Semiconductor I's
agreement that the indemnification obligations of Semiconductor I's set forth in
this Agreement inure to the benefit of and are enforceable by such C-Cube
Indemnitee.

        SECTION 3.6. COUNTERPARTS. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.

        SECTION 3.7. ASSIGNMENT. The rights and obligations in this Agreement
may not be assigned or delegated by any party hereto, in whole or in part,
without the express prior written consent of the other party hereto.

        SECTION 3.8. SEVERABILITY. If any term or other provision of this
Agreement or the Schedules or Exhibits attached hereto is determined by a
nonappealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.



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<PAGE>   12

        SECTION 3.9. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of either party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty or agreement herein, nor shall any single
or partial exercise of any such right preclude other or further exercise thereof
or of any other right.

        SECTION 3.10. AMENDMENT. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to this Agreement.

        SECTION 3.11. AUTHORITY. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other action, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.

        SECTION 3.12. INTERPRETATION. The headings contained in this Agreement,
in any Exhibit or Schedule hereto and in the table or contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.

                                   ARTICLE IV.

                                   DEFINITIONS

        SECTION 4.1. ACTION. "ACTION" means any demand, action, suit,
countersuit, arbitration, inquiry, proceeding or investigation by or before any
federal, state, local, foreign or international governmental authority or any
arbitration or mediation tribunal.

        SECTION 4.2. AFFILIATED COMPANY. "AFFILIATED COMPANY" means, with
respect to C-Cube, any entity in which C-Cube holds a 50% or less ownership
interest that is listed on SCHEDULE 6.1(a) to the Separation Agreement and, with
respect to Semiconductor I and Semiconductor II, any entity in which
Semiconductor I or Semiconductor II holds a 50% or less ownership interest and
that is listed on SCHEDULE 6.1(b) to the Separation Agreement. SCHEDULES 6.1(a)
and 6.1(b) may be amended from time to time after the date hereof upon mutual
written consent of the parties.

        SECTION 4.3. ASSIGNMENT AGREEMENT. "ASSIGNMENT AGREEMENT" means the
General Assignment and Assumption Agreement attached as EXHIBIT C to the
Separation Agreement.

        SECTION 4.4. C-CUBE FACILITIES. "C-CUBE FACILITIES" means all of the
real property and improvements thereon owned or occupied at any time on or
before the Separation Date by C-Cube,



                                      -9-
<PAGE>   13

whether for the DiviCom Business or the Semiconductor Business, excluding the
Semiconductor I or Semiconductor II Facilities.

        SECTION 4.5. C-CUBE GROUP. "C-CUBE GROUP" means C-Cube, each Subsidiary
and Affiliated Company of C-Cube (other than any member of the Semiconductor
Group) immediately after the Separation Date and each Person that becomes a
Subsidiary or Affiliate Company of C-Cube after the Separation Date.

        SECTION 4.6. C-CUBE INDEMNITEES. "C-CUBE INDEMNITEES" means C-Cube, each
member of the C-Cube Group and each of their respective directors, officers and
employees.

        SECTION 4.7. EMPLOYEE MATTERS AGREEMENT. "EMPLOYEE MATTERS AGREEMENT"
means the Employee Matters Agreement attached as EXHIBIT E to the Separation
Agreement.

        SECTION 4.8. ENVIRONMENTAL ACTIONS. "ENVIRONMENTAL ACTIONS" means any
notice, claim, act, cause of action, order, decree or investigation by any third
party (including, without limitation, any Governmental Authority) alleging
potential liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, damage to
flora or fauna caused by Environmental Conditions, real property damages,
personal injuries or penalties) arising out of, based on or resulting from the
Release of any Hazardous Materials. "Environmental Actions" shall not include
any personal injury claim made by any employee of the Semiconductor Group or the
C-Cube Group arising during the course or scope of the employment of such
employee for the C-Cube Group or for the Semiconductor Group.

        SECTION 4.9. ENVIRONMENTAL CONDITIONS. "ENVIRONMENTAL CONDITIONS" means
the presence in the environment, including the soil, groundwater, surface water
or ambient air, of any Hazardous Material at a level which requires
investigation or remediation (including, without limitation, investigation,
study, health or risk assessment, monitoring, removal, treatment or transport)
under any Environmental Laws.

        SECTION 4.10. ENVIRONMENTAL LAWS. "ENVIRONMENTAL LAWS" means all laws
and regulations of any Governmental Authority with jurisdiction that relate to
the protection of the environment (including ambient air, surface water, ground
water, land surface or subsurface strata) including laws and regulations
relating to the Release of Hazardous Materials, or otherwise relating to the
treatment, storage, disposal, transport or handling of Hazardous Materials, or
to the exposure of any individual to a Release of Hazardous Materials.

        SECTION 4.11. GOVERNMENTAL AUTHORITY. "GOVERNMENTAL AUTHORITY" means any
federal, state, local, foreign or international court, government, department,
commission, board, bureau, agency, official or other regulatory, administrative
or governmental authority.

        SECTION 4.12. HAZARDOUS MATERIALS. "HAZARDOUS MATERIALS" means
chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and
biological materials, hazardous substances, petroleum and petroleum products or
any fraction thereof.



                                      -10-
<PAGE>   14

        SECTION 4.13. INDEMNITEE. "INDEMNITEE" has the meaning set forth in
SECTION 1.5(a) hereof.

        SECTION 4.14. INSURANCE POLICIES. "INSURANCE POLICIES" means insurance
policies pursuant to which a Person makes a true risk transfer to an insurer.

        SECTION 4.15. INSURANCE PROCEEDS. "INSURANCE PROCEEDS" means those
monies:

        (a) received by an insured from an insurance carrier; or

        (b) paid by an insurance carrier on behalf of the insured;

from Insurance Policies.

        SECTION 4.16. INSURED SEMICONDUCTOR LIABILITY. "INSURED SEMICONDUCTOR
LIABILITY" means any Semiconductor Liability to the extent that (i) it is
covered under the terms of C-Cube's Insurance Policies in effect prior to the
Distribution Date and (ii) Semiconductor is not a named insured under, or
otherwise entitled to the benefits of, such Insurance Policies.

        SECTION 4.17. LIABILITIES. "LIABILITIES" has the meaning set forth in
the Assignment Agreement.

        SECTION 4.18. PERSON. "PERSON" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.

        SECTION 4.19. PRIME RATE. "PRIME RATE" means the prime rate as published
in the Wall Street Journal on the date of determination.

        SECTION 4.20. RELATED SEMICONDUCTOR CONTINGENT LIABILITIES. "RELATED
SEMICONDUCTOR CONTINGENT LIABILITIES" means any set or group of Semiconductor
Contingent Liabilities arising from any single Action (including any group of
Actions that are consolidated as a single Action and any Action or Actions
certified as a class action) or any Action that is brought or threatened to be
brought as a class action and that is settled.

        SECTION 4.21. RELEASE. "RELEASE" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, groundwater, wetlands, land or subsurface strata.

        SECTION 4.22. "RETAINED LIABILITIES". "Retained Liabilities" has the
meaning set forth in the Assignment Agreement.

        SECTION 4.23. SEMICONDUCTOR ASSETS. "SEMICONDUCTOR ASSETS" has the
meaning set forth in SECTION 1.2 of the Assignment Agreement.



                                      -11-
<PAGE>   15

        SECTION 4.24. SEMICONDUCTOR BUSINESS. "SEMICONDUCTOR BUSINESS" means the
business and operations of C-Cube defined as the Semiconductor Business in the
Restated Merger Agreement.

        SECTION 4.25. SEMICONDUCTOR CONTINGENT LIABILITY. "SEMICONDUCTOR
CONTINGENT LIABILITY" has the meaning set forth in the Assignment Agreement.

        SECTION 4.26. SEMICONDUCTOR CONTRACTS. "SEMICONDUCTOR CONTRACTS" has the
meaning set forth in SECTION [4.8] of the Assignment Agreement.

        SECTION 4.27. SEMICONDUCTOR GROUP. "SEMICONDUCTOR GROUP" means
Semiconductor I, Semiconductor II, each Subsidiary and Affiliated Company of
Semiconductor I or Semiconductor II immediately after the Separation Date and
each Person that becomes a Subsidiary or Affiliate Company of Semiconductor I or
Semiconductor II after the Separation Date.

        SECTION 4.28. SEMICONDUCTOR INDEMNITEES. "SEMICONDUCTOR INDEMNITEES"
means Semiconductor I, Semiconductor II, each member of the Semiconductor Group
and each of their respective directors, officers and employees.

        SECTION 4.29. SEMICONDUCTOR LIABILITIES. "SEMICONDUCTOR LIABILITIES" has
the meaning set forth in the Assignment Agreement.

        SECTION 4.30. SEPARATION. "SEPARATION" means the transfer and
contribution from C-Cube to Semiconductor I and Semiconductor II, and
Semiconductor I and Semiconductor II's receipt and assumption of, directly or
indirectly, substantially all of the Assets and Liabilities currently associated
with the Semiconductor Business and the stock, investments or similar interests
currently held by C-Cube in subsidiaries and other entities that conduct such
business.

        SECTION 4.31. SEPARATION AGREEMENT. "SEPARATION AGREEMENT" means the
Master Separation and Distribution Agreement dated as of ____________, 2000, of
which this is an Exhibit thereto.

        SECTION 4.32. SEPARATION DATE. "SEPARATION DATE" means 12:01 a.m.,
Pacific Time, __________, 2000, or such date as may be fixed by the Board of
Directors of C-Cube.

        SECTION 4.33. SUBSIDIARY. "SUBSIDIARY" means with respect to any
specified Person, any corporation, any limited liability company, any
partnership or other legal entity of which such Person or its Subsidiaries owns,
directly or indirectly, more than 50% of the stock or other equity interest
entitled to vote on the election of the members of the board of directors or
similar governing body. Unless context otherwise requires, reference to C-Cube
and its Subsidiaries shall not include the subsidiaries of C-Cube that will be
transferred to Semiconductor I or Semiconductor II after giving effect to the
Separation.

        SECTION 4.34. TAX SHARING AGREEMENT. "TAX SHARING AGREEMENT" means the
Tax Sharing Agreement, attached as EXHIBIT F to the Separation Agreement.



                                      -12-
<PAGE>   16

        SECTION 4.35. TAXES. "TAXES" has the meaning set forth in the Tax
Sharing Agreement.

        SECTION 4.36. THIRD PARTY CLAIM. "THIRD PARTY CLAIM" has the meaning set
forth in SECTION 1.5(a) of this Agreement.




                         [SIGNATURES ON FOLLOWING PAGE]


                                      -13-
<PAGE>   17
        IN WITNESS WHEREOF, each of the parties has caused this Indemnification
and Insurance Matters Agreement to be executed on its behalf by its officers
thereunto duly authorized on the day and year first above written.

                                        C-CUBE MICROSYSTEMS INC.

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                               ---------------------------------

                                        C-CUBE SEMICONDUCTOR INC.

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                               ---------------------------------


                                        C-CUBE SEMICONDUCTOR II INC.

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                               ---------------------------------